Top ways to ensure your pension is on the right path
For anyone with a retirement pot to look after it is important to be aware of what your pension is doing.
Pensions are an unfortunately complex retirement savings product, with a myriad of reliefs and tax rules around them which govern how much you can pay in, and what you can eventually take out. For that reason, it pays to ensure you’re keeping a close enough eye on your retirement funds to maximise the benefits of the pension and prevent any issues arising later in life.
Here are some key things to think about when it comes to your pension.
Are you contributing enough?
This is important for anyone saving into a pension, but the earlier you consider how much you’re saving into a pension the better. This is because the longer you leave more money to grow in a pension, the better the eventual outcome – i.e., how big your retirement fund – will be.
Final salary or ‘defined benefit’ (DB) pensions are on the way out. These were schemes in the past where workers paid in a nominal amount, but most of the liabilities for paying an income in retirement fell on either their employer, or in many cases for public sector workers, the government.
These days a defined contribution (DC) pension is much more likely to be what you’re saving into. What makes this different from DB is you only really get out what you put in to DC pensions. Employers are obliged to contribute a minimum of 3% to your workplace pension, with minimum personal contributions set at 5%. However, if you earn over £50,270 the contributions are capped to £183.46 per month. This isn’t a hard cap – you can increase your contributions – but you will have to actively ask your employer to increase them.
In terms of what is ‘enough’ this depends on what kind of lifestyle you would expect to maintain in later life and can be quite tricky to figure out. A common rule of thumb is that you would need to be able to give yourself an income worth around two thirds of what you earn today. This typically only factors in that you might have paid off your mortgage though, accounting for one third of your outgoings.
If you are unsure what sort of level you should be saving to, it is essential to speak to an adviser who can help you ascertain important aspects of planning for that retirement income.
Are you taking the right risk?
Contributions are one thing, but if a pot isn’t growing sufficiently over the long term, then this will greatly diminish the effectiveness of pension savings over a lifetime.
Another rule of thumb here is the younger you are, the more risk you should be taking. When you start a new workplace pension your money will be put in what is called the ‘default’ fund. These kinds of funds are routinely criticised for underperforming comparative funds elsewhere, and can leave retirees with disappointment come retirement.
Conversely, as you approach your chosen retirement age, it is a good idea to start considering derisking some of your portfolio. This is to preserve the value of the pot in long-term investment markets, and also to start adjusting some of your assets to focus on paying an income – which you will need in retirement.
How can I find missing pots?
With people regularly changing jobs over the years, it can be easier than you might assume to lose track of pension funds, particularly for older pots that don’t have digital accounts and might have been drawn up with simple paperwork.
This is also compounded by the financial services industry which is routinely changing company names or going through sales and mergers. The company who had your pot 10 year ago might be different today!
Fortunately, there are good ways to go about tracking down a missing pot. The government has a pension tracing service which should be your first port of call to track down an old pension. If this doesn’t bear fruit, then speaking to your old employer, then a financial adviser, could be good next steps as they will have more access to information about where the pension might have ended up.
Is it worth consolidating pots?
If you’ve found an old pot, or you’ve got small pots from old employers which you’re not contributing to, it could be worth considering consolidation of those pots. The main reasons why consolidation is beneficial is it makes it easier to manage the money in one place, and you could find somewhere better value, or with more options for your money to save.
There are a few drawbacks to pot consolidation that you should be aware of though. The first being that some pension pots, particularly older DB pots, come with specific arrangements, rules and bonuses that could be lost if you were to transfer the money out of that pot. If this could be the case for you, it is essential you speak to an adviser before taking any action.
Secondly, small pots do have some tax benefits, which can help toward certain goals when you retire. Once you reach pensions freedom age, pensions worth under £10,000 can be taken all in one go, with 25% tax free. You can do this with an unlimited number of workplace pensions, or with up to three personal pensions.
When can you access your retirement fund?
This comes down to the pension freedoms age mentioned above. This is currently set at 55 but will increase to 57 in 2028 to coincide with the rising state pension age.
It is ever more likely these days that you might be working well beyond the age of 57. If that is the case then it could be beneficial to draw upon other sources of wealth in your 50s and leave the pension untouched as long as possible, so you can continue to enjoy generous tax relief benefits from your salary.
An adviser can help you decide the best strategy for this and everything else mentioned previously in this article. Using tools such as cashflow modelling and by structuring growing wealth carefully, you will be able to maximise the benefit of a pension and minimise some of the potential pitfalls.
The World In A Week - Summer Prints
Written by Millan Chauhan.
Last week, we saw the release of US inflation data where the US Consumer Price Index reached 3.2% on a year-over-year basis as of July 2023 which was below expectations of 3.3%. Inflation has fallen significantly from its highs of 9.1% in June 2022. Food was one of the largest contributors to July’s monthly inflation print of 0.2%. Food at Home costs rose 3.6% and Food Away from Home costs rose 7.1% on a year-over-year basis. Attention now turns towards the UK and Continental Europe where we await July’s inflation data readings on Wednesday and Friday respectively. In the UK, analysts expect to see inflation fall to 6.8% and in the Euro Area to 5.3%, both on a year-over-year basis for July 2023.
Over the last 15 months, we have seen central banks implement several interest rate hikes, which has caused commercial banks to raise the interest rate received on deposits by savers. Some banks have been slower to increase the interest rate received than others. Last week, the Italian Government stepped in to penalise banks for failing to pass enough of the interest hikes from the European Central Bank (ECB) to depositors, it initially stated that it would tax 40% of net interest margins in 2022 or 2023 which initially saw numerous Italian banks sell off sharply. The announcement was a shock to investors and was widely criticised. Subsequently the Italian Prime Minister, Giorgia Meloni backtracked the decision and clarified that any levy applied would be capped to 0.1% of assets.
The UK’s Gross Domestic Product (GDP) grew 0.5% in June 2023 which was above expectations of 0.2%. The extra bank holiday has been cited as a key driver; however, we have also seen production output grow 1.8% in June 2023 which outpaced the Services & Construction sectors. June’s strong economic growth data saw the UK’s Q2 GDP grow by 0.2%.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th August 2023.
© 2023 YOU Asset Management. All rights reserved.
Why does the Bank of England hike rates to tame inflation?
Households have faced fierce price rises in the past 18 months, with the current rate of inflation (for April 2023) at 8.7% on the CPI measure by the Office for National Statistics (ONS).
However, with inflation so high, why does the Bank of England (BoE) respond with repeated rate hikes? Since inflation began to run away the BoE has been in a process of increasing interest rates. The Bank’s Monetary Policy Committee (MPC) meets most months to decide where it would like rates to be.
Since December 2021 the MPC has hiked the base rate 12 times, the largest hike by 0.75% in November 2022. The current base rate is now 4.5%, having risen from just 0.1% in December 2021.
Inflation game
In order to understand why interest rates are rising, first we have to understand inflation, its causes, and effects.
The government and national statistical authorities measure inflation in order to understand what is happening in the economy. A general goal of the Government is to help grow the economy as measured by gross domestic product (GDP). Although a fairly blunt measure, GDP is the best approximation economists have to tell whether, as a nation, we’re getting wealthier.
When an economy grows prices generally rise with it as people earn more money and spend more on goods and services. Inflation is not a ‘bad’ thing if controlled as it encourages spending, saving (when the interest rates are attractive) and investing. Inflation encourages saving and investing because doing this with your wealth is a good way to maintain or grow its value ahead of inflation.
However, problems can arise when inflation gets too high. This can be caused by an economy growing too quickly – people find themselves with more money and spend it quickly which leads to prices rising faster in response to the increasing demand.
It can also be caused by supply issues. If a company has less of something available to sell, but the same level of demand, it will typically hike the cost as a result – this is the kind of inflation we are largely suffering from now in the wake of the pandemic.
Where interest rates come in
This is where interest rates come into the picture. The UK economy during the 2010s generally lived with very low, stable levels of inflation. In the wake of the financial crisis the BoE cut interest rates to rock bottom in order to make borrowing cheap and encourage the financial system to function correctly. As inflation was so low, it saw little need to hike rates back up to historic levels. However, the inflation which started to rise in 2021 changed this thinking.
Hiking interest rates does two things to an economy.
Firstly, it makes debt more expensive. All debt-related products such as mortgages, loans and credit cards set a level of interest that is ultimately based upon calculations by financial providers who look to the BoE for guidance on a basic level of interest to set. When the BoE hikes its rates, so do these providers, such as banks and other financial institutions. For households, this means more expensive monthly payments on mortgages – if they have a tracker mortgage, more expensive debt servicing on credit cards, and more expensive loans. By doing this, the BoE effectively takes away households’ disposable income, forcing them to spend less on goods and services in the economy, and reining in demand and therefore ultimately, inflation.
The second effect of interest rate hikes is sort of the opposite – it makes saving more attractive. By increasing the base rate, the BoE encourages banks and savings providers to offer better savings rates to customers. By doing this, anyone with money saved up is encouraged not to spend it by better returns offered for leaving the money untouched. While easy-access savings accounts offer a good rate when this happens, the best rates are found in four- or five-year fixed savings accounts or ISAs.
However, this is only theoretical and there is a big issue at the moment which makes this situation look less attractive. With inflation at 8.7%, and the Bank of England base rate at 4.5% – savers, even on the best deals, still won’t find a rate of interest that beats inflation. This means ultimately that even if your money is locked away and earning interest, it is still losing value relative to inflation. As such, it still pays to look at different ways of using your hard-earned money, particularly by investing through the stock market, bonds, and other assets such as gold, property, and others.
In order to make the best decision it is important to consult with a financial adviser to ensure the best outcome and structure possible for your wealth.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th June 2023.
The World In A Week - Calm before the storm
Written by Chris Ayton.
Global equity markets trod water last week, with the MSCI All Country World Index ending the week down -0.2% in Sterling terms. MSCI Europe ex-UK fell -1.1%, with the FTSE All Share Index and the S&P 500 Index both dropping -0.4% but MSCI Emerging Markets was up +1.1% boosted by positive returns in China and Brazil. After years of neglect and disinterest, corporate governance improvements are leading international investors to revisit their allocations to Japanese equities and this helped MSCI Japan rise +1.5% for the week. However, the Japanese Yen remained weak ahead of the Bank of Japan meeting this week where, unlike all other major economies, it is expected to maintain its ultra-loose monetary policy. The Federal Reserve and the European Central Bank (ECB) also meet this week.
Last week the Organisation for Economic Co-Operation and Development (OECD) released its latest GDP growth forecasts for 2023 and 2024, predicting the global economy would expand by 2.7% in 2023 and 2.9% in 2024. Underlying that, it went on to predict the US will avoid recession, India will grow strongly (6% this year, 7% next year), and China will achieve its target of 5% GDP growth this year and next. However, it estimated the UK will only achieve 0.3% growth this year and 1% next year, although this is better than previous estimates. While this backdrop is certainly interesting, it is important to remember that economic growth does not equate to stock market returns.
In Europe, the EU’s statistics agency revised down the EU’s GDP growth to -0.1% for both the final quarter of 2022 and first quarter of 2023, meaning the Eurozone is technically already in a recession. This surprising news came on the back of Germany also announcing that it had fallen into recession. This data has brought into question the European Commission’s 1.1% growth forecast for 2023 and it will be interesting to see if the ECB starts to face any pressure to ease up on further interest rate rises at their upcoming meeting.
Data released by Halifax last week showed UK house prices registering their first annual decline since 2012, with average house prices in May sitting 1% below where they were this time last year. The Nationwide Building Society had earlier indicated an even greater annual decline. With Uswitch reporting the average 5-year fixed rate mortgage rate in the UK has now hit 5.59% and further interest rate rises expected going forward, this is clearly starting to impact price expectations for buyers and sellers.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th June 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - The narrowing leadership in US stocks
Written by Ilaria Massei.
Last Friday, we saw US stocks hit a nine-month high thanks to encouraging talks on debt ceiling and tech sector gains. The NASDAQ 100 rose 4.5% last week in GBP terms, boosted by the rally experienced by AI related stocks. There have only been a handful of stocks in the mega-cap market range that have led this rally in tech stocks. These include the likes of Alphabet, Amazon, Meta, Microsoft and NVIDIA. Last Thursday, shares of the chipmaker NVIDIA jumped 24%, making the company the sixth most highly valued public company in the world. Shares rose after the company beat consensus first-quarter earnings expectations by a wide margin and raised its profit outlook.
This extraordinary performance resurfaced the topic of narrow leadership in the US stock market, whereby fewer and fewer US tech stocks contribute to the broad index level return. Another crucial topic last week was the debt ceiling talks where policymakers delivered some encouraging news, signalling that they were working on a deal to raise the debt ceiling before the June deadline to avoid an unprecedented default. Meanwhile, the core (less food and energy) personal consumption expenditures (PCE) price index, rose by 0.4% in April, a tick above expectations.
Elsewhere, data released last Thursday signalled that the German economy fell into a recession in the first quarter, due to persistent high price increases and a surge in borrowing costs. GDP shrank 0.3% in the three months through March, a downward revision from an early estimate of zero growth. However, European Central Bank (ECB) policymakers’ view is that interest rates would need to rise further and stay high to curb inflation in the medium term, potentially deteriorating the economy further.
The MSCI Japan declined to -1.1% last week in GBP terms but encouraging data released last week saw Japanese manufacturing activity expanding for the first time in seven months in May. The services sector also reported robust growth, as the reopening of the country to tourism led to a record rise in business activity.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 30th May 2023.
© 2023 YOU Asset Management. All rights reserved.
The World In A Week - Buffett bets big in Japan
Written by Cormac Nevin.
Markets rallied last week as data releases such as strong housing statistics in the US allayed fears of an economic hard landing driven by the interest rate increases we have witnessed over the last year. The MSCI All Country World Index of global equities (MSCI ACWI) rallied +1.5% in GBP terms.
A market which the team has noticed getting an increasing degree of exposure from global investors recently has been the Japanese Equity market. In local terms, Japanese Equities are up +8.5% over the course of the second quarter to date, which has strongly outperformed MSCI ACWI over the same period (+1.9%). The GBP return has been reduced by a weakening in the Yen vs Sterling, therefore returning +3.6%, but it remains strongly ahead of other markets. We have been overweight to the Japanese Equity market since 2020 and find it interesting that many of the characteristics of the market which we find appealing are now being given more attention from other investors and the media. These include attractive valuations compared to, for example, the US Equity market, corporate governance reforms being driven by the Tokyo Stock Exchange and other forces including low inflation, accelerating GDP and wage data. While the Yen has proved a headwind for GBP-based investors for the year to date, we think it provides excellent diversification benefits and room for the Japanese currency to rally should the global economy deteriorate as many predict which would lead to a potential narrowing in US/Japanese interest rate differential.
Another interesting element has been the increased investment in the Japanese market from Warren Buffett. While we think investors should never slavishly follow any one investment luminary, we do think it is interesting that the Sage of Omaha now owns more stocks in Japan than in any other country besides the US via his Berkshire Hathaway holding company. Given Mr Buffett’s exceedingly long track record in finding high quality companies trading at discounted valuations, we believe that the Japanese Equity market could potentially be an excellent return driver into the future while other developed markets are more challenged from high valuations or macroeconomic turbulence.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd May 2023
© 2023 YOU Asset Management. All rights reserved.
Inheritance tax cut on the cards
The Prime Minister Rishi Sunak is said to be considering cutting Inheritance Tax (IHT) ahead of the next general election in 2024.
According to a report first published by financial news site Bloomberg, Sunak is considering a cut to IHT alongside other potential tax cuts in order to garner more public support ahead of a new election campaign. There is however little detail on the proposed cut and what it might contain.
What might an IHT cut contain?
The number of households liable to IHT has slowly crept up over a decade, mainly thanks to the threshold staying at £325,000 since 2009. This means that property values which have risen naturally over time have tipped homeowners over the threshold, resulting in more estates being subject to larger IHT bills. The basic 40% IHT rate has also remained the same for some time. As such, these two aspects of the tax could be the chief target of a change, either with a cut to the rate or lifting of the threshold.
IHT is one of the most disliked taxes in the country, aside from the fact it is payable when someone dies, chiefly because it is seen as taxing assets and income that have already been heavily taxed along the way in life. Cuts to the tax would be a popular move. Research from legal firm Kingsley Napier found that three in five Brits (63%) support increasing the allowance, while nearly half (48%) would be in favour of abolishing the tax, which brought in £6.1 billion to HMRC last year, altogether.
Complexity
IHT was the subject of a review by the Office of Tax Simplification (OTS) in 2018. However, the main findings of this were that the process of IHT was too onerous for families and the administration should be simplified. The Government however rejected the changes in 2021.
Other potential changes could include the rules around gifting, the residence nil rate band – currently £175,000, and other aspects of the tax. It is however unlikely that we’ll see IHT cuts imminently. There are two key opportunities for the Government to make such a move, this Autumn in its financial statement update, or in the 2024 Spring Budget. This is open to political speculation and is dependent on how the economy fares this year. Government borrowing has already come in less than expected in the past 12 months, which suggests Chancellor Hunt could have more room for manoeuvre come his next financial update.
Ultimately, much will depend on the polls and whether the Prime Minister thinks he could win next May (a typical time of year to hold the general election) or wait until the last opportunity of December 2024.
Either way, the key message for anyone thinking about planning their wealth for the long term is to have a strong plan in place for any outcome. As the goalposts move, having access to key advice for structuring your wealth is critical for positive lifelong outcomes.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.
Food prices rising at record levels – but does that mean higher inflation and interest rates for longer?
Households have felt persistent pressure on their everyday costs, but food price inflation has been particularly pernicious in recent months.
The Office for National Statistics (ONS) reported year-on-year food price increases of 19.1% in March 2023 based on the consumer price index (CPI) measure. This was an increase from 18% the month before. Consumer data provider BRC-NielsonIQ saw its shop price index show 17.8% price increases year-on-year in April – the highest increase seen in 45 years.
With the headline rate of 10.1% CPI inflation, should we be concerned about inflation persisting for longer, and thus bigger interest rate hikes?
Why food prices are soaring
Food prices are just one aspect of a wider basket of goods and services the ONS measures in order to gauge the general rise in the cost of living for households. Food price rises are particularly high because they suffer from the secondary effects of the kind of inflation the UK, and most of Europe, is suffering. The current high level of inflation is primarily stoked by an energy crisis, which in turn is caused by returning demand post-pandemic and then the invasion of Ukraine by Russia.
Energy prices are a painful place to see rapid rises because they essentially affect everything else. From factory lines to food processing and just about anything else you can think of, households and businesses all need energy to function. If the price of energy rises, it holds that the prices of things we make should rise to cover that cost. Food is especially volatile because it has even more external factors that can affect it, plus major food production supplies, such as from Ukraine, are under extreme and unusual pressure.
Food prices are so volatile most countries produce ‘core inflation’ statistics that exclude food prices. CPI core inflation is currently at 6.2%.
Interest rates
With food inflation so persistently high, this begs the question whether the Bank of England will meet the challenge with more aggressive rate hikes in order to bring prices down. However, precisely because the bank knows how volatile food prices can be, it will be cautious about acting upon those figures alone.
Energy prices are starting to come down in earnest, with wholesale gas prices now below the level they were at before the invasion of Ukraine in February 2022 and at the lowest level since December 2021. Plus, other global macroeconomic effects such as an unusually strong dollar are busy unwinding. A strong dollar tends to increase inflation pressure because many commodities are traded globally priced in dollars.
If the pound falls versus the dollar, then those commodities become more expensive for the country to acquire and vice versa. Since reaching a low of £1:$1.07 at the end of September last year, the pound has steadily gained ground and is now trading around $1.26.
All that said, the Bank of England will be cautious about ending rate hikes, or even starting cuts, until it is sure inflation is coming back to earth in a meaningful way.
Where does this leave me and my money?
Inflation is a critical metric to watch when it comes to long-term wealth management. The level of inflation has a direct impact on where central banks go with interest rates and this in turn has profound implications in everything from government debt and taxation levels to market performance and cash value erosion. Over time the figures might seem irrelevant but the only way to keep ahead of inflation and prepare for major financial and tax-based changes that will affect your portfolio and lifetime wealth is careful management.
If you would like to discuss inflation, interest rates and the general outlook for the rest of 2023 and the implications for your wealth, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.
When is your Tax Freedom Day?
Tax Freedom Day is the day in the year where, theoretically, you’re no longer working solely to pay your annual taxes and instead begin keeping your own money. These numbers are of course calculated by averages. Individually speaking, everyone will have a slightly different Tax Freedom Day of their own.
In 2022 Tax Freedom Day fell on 8 June, whereas in 2021 Tax Freedom Day fell a full week earlier, such is the heightened burden of taxation. It reminds us that any money you earn effectively goes straight into the Government’s coffers. Last year it took an average worker 159 days to start earning money for themselves. The Tax Freedom Day of 2022 was the latest on record, according to the Adam Smith Institute, thanks to a persistently increasing tax burden on households, and it is only predicted to fall even later in 2023. However, it is possible to bring your Tax Freedom Day forward.
Planning for tax efficiency
This especially matters if you’re facing taxes on more than just income. Taxation comes in many forms and can be a serious barrier to successful wealth growth.
Through an individual’s lifetime, taxation will take a cut of:
- Property through stamp duty and council tax
- Income through income tax (and National Insurance)
- Expenditure through VAT
- Profits on investments through capital gains tax
- Profit on investment income through dividend tax
- Passing on your estate to loved ones through inheritance tax (IHT)
There’s good news and bad news in this. Some of these taxes are essentially unavoidable. Income tax, council tax, VAT and stamp duty are effectively unavoidable unless you become a tax exile. Obviously with income tax there are ways to reduce the burden, but typically this comes from reliefs such as Marriage Allowance, which won’t apply to everyone and will only reduce the liability by a relatively small amount.
However, there are significant and effective ways to mitigate the effects of taxes on investments, long-term savings and other liquid investments. This comes primarily through the use of pensions and ISA allowances.
Pensions allow for the deferral of tax liability until you access your pension. Of course, there are implications when you do draw down, but the relief at source available makes this worth it to a large extent. Plus, the 25% tax free allowance and other ways to structure drawdown make pensions still very valuable. Add to that the recent abolition of the lifetime allowance and pensions are a viable method for mitigation still. Plus, pensions are currently largely exempt from inheritance tax, adding another feather to the cap of the vehicle’s tax efficiency. They can also be a good way of getting around the gifting allowance, as individuals are able to pay in to pensions for children or grandchildren from any age.
ISAs provide a reverse benefit to pensions for long-term tax liability mitigation. While you won’t get upfront relief for contributions, there are essentially no implications when it comes to using the money at the other end.
Finally, one of the most disliked and complicated taxes, inheritance tax (IHT), has a myriad of rules and allowances that allow for mitigation. However, what is essential to remember with IHT is these mitigations are best applied over time. This makes careful wealth management and planning critical. Coupled with well-structured growth through ISAs, pensions and other methods you could see your own personal Tax Freedom Day start to fall much earlier in the year.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 16th May 2023.
The World In A Week - Have we reached the summit?
Written by Shane Balkham.
UK inflation fell to below 5% in October, on the back of a sharp decline in energy costs. The monthly publication from the Office of National Statistics (ONS) showed a 2.1% drop in UK Consumer Price Inflation (CPI) from 6.7% for September to 4.6% for October.
A significant contributor to this fall was the fall in energy prices; over the year to the end of October, gas prices fell by 31% and electricity prices fell by 15.6%. Food prices were little changed for October.
This is a positive step bringing inflation back down to the Bank of England’s (BoE) target level of 2%. There are another three weeks until the Monetary Policy Committee of the BoE meets to discuss the path of UK interest rates, and it remains a delicate balancing act.
The US also had a pleasant surprise for inflation, with a fall greater than expected. US CPI for October fell from 3.7% to 3.2%, which was marginally below consensus expectations. The reaction of the US market was one of relief, with US Treasury yields falling and the stock market rallying.
Some commentators believed that this was an overreaction by investors and while inflation is certainly heading in the right direction, there will be challenges ahead. The US Federal Reserve meets a day earlier than the BoE, with the next decision on interest rate policy coming on 13th December.
It makes sense that the reaction from markets on October’s inflation readings was one of relief. However, central banks are known for not necessarily doing the right thing at the right time, and although there is optimism that we have reached the peak in the interest rate hiking cycle, we are still treading carefully in our investment decisions.
From policymakers to politics, where the US House of Representatives voted to avert a costly government shutdown last week. In a similar move to that of six weeks ago, the can has been kicked down the road until early in the new year. The proposal provides a two-step plan that sets up two new shutdown deadlines next year. US government funding has been divided into two different parts, with priority given to military construction, transportation, housing, and the Energy Department, which has a new deadline of 19th January 2024. Anything not covered in this first step would be funded until 2nd February 2024. Politics will certainly start the New Year in the spotlight and will likely remain there.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th November 2023.
© 2023 YOU Asset Management. All rights reserved.