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.
If you’d like more information to pass on to your clients, please don’t hesitate to get in touch with your professional connections’ financial adviser contact.
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, please don’t hesitate to get in touch with your professional connections’ financial adviser contact.
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.
Why your household bills could be about to soar – and what to do about it
Household bills could soar by up to £400 a year as the Government tries to find ways of funding its ‘net zero’ pledge by 2050, a new report has claimed.
The National Infrastructure Commission (NIC) says the Government needs to invest heavily in greenhouse gas removal technologies if it is to meet that target. It estimates that investment will cost the taxpayer up to £400m over the next decade, but argued that the most polluting industries, such as shipping, aviation and agriculture should pay £2bn a year from 2030.
However, the NIC acknowledged that this cost would likely be handed down to consumers in the form of higher food, transport, goods and energy bills. It estimates that the lowest earners are likely to see their bills rise £80 a year by 2030, with the highest earners having to fork out up to £400 more a year.
However, you can offset those costs by making some small money-saving changes elsewhere.
Here are just some of the ways you can trim your outgoings.
- Cut your utility bills: the average dual fuel energy bill costs £1,131 a year, or £94.35 a month, according to Ofgem. However, you can cut hundreds a year off your bill by only using the heating when necessary, turning off lights when you leave a room, using energy efficient lightbulbs and making sure your boiler is serviced regularly. You could also save a lot of money by shopping around for the best energy deal by using a comparison site.
- Check you’re not overpaying on council tax: More than 400,000 homes are currently in the wrong council tax band and are therefore overpaying, according to TV money expert Martin Lewis. It is thought that some homes have been in the wrong band since the current system was introduced in 1991. However, if you have overpaid, you might be able to claim a discount on future payments. Click here to find out how.
- Use the car less: Petrol prices hit an eight-year high in June after eight consecutive monthly increases, according to motoring organisation RAC. With the average annual fuel bill standing north of £1,000, you could save a small fortune by opting to walk or cycle to work instead.
- Reduce your debt interest payments: According to The Money Charity, the average UK resident has nearly £2,000 in credit card debt. If you’re paying high rates of interest on your loans and credit cards, look to see if you can shift them onto a card charging 0% interest. That way, your monthly repayments are paying down just the debt, rather than the interest.
- Cancel unused memberships and subscriptions: Have a gym membership that you never use? Or perhaps paying for Netflix when you rarely watch television? Then you might want to consider cancelling them. But make sure you check you’re not locked in and liable for any early cancellation fees first.
If you’d like to discuss additional ways to make your money work harder, don’t hesitate to get in touch with your adviser.
What the proposed 1% hike to National Insurance would mean for your money
The Government is reportedly planning to hike National Insurance by 1% to pay for social care, in a move that could leave workers hundreds of pounds a year worse off.
The increase would result in workers having to pay more in tax, meaning they would have less disposable income to spend each month. It has been reported that the plan could raise more than £10bn in additional tax revenue to help the Government pay for the rising care costs of the UK’s ageing population.
While the policy is likely to be unpopular, experts say it would result in fewer people having to sell their homes to pay for care in old age. However, critics argue a hike to National Insurance is the least fair way of solving the problem, as it would hit lower earners hardest.
Also, as retirees do not pay NI, it would also mean the burden of funding social care would fall entirely on workers, which again would likely be very unpopular.
Here we explain what the proposal would mean for your finances.
How does National Insurance work at present?
NI raises around £150bn a year for the Treasury’s coffers, making it the second biggest earner after income tax.
It is used mainly to pay for state benefits, such as the state pension, statutory sick pay, maternity leave and unemployment and disability benefits.
Workers do not pay NI until they earn £9,568. You then pay 12% of your earnings between £9,568 and £50,270, and 2% for anything you earn over this amount. The self-employed pay lower amounts of NI.
However, if the Government presses ahead with its plans, those rates would rise from 12% to 13% and from 2% to 3% respectively.
How would it affect me?
How much you pay in NI is linked to how much you earn, meaning the higher your salary the bigger your contribution. Figures calculated by accountants Blick Rothenberg for The Sun reveal that someone earning £15,000 a year would see their NI contributions rise by £54 a year to £706.
Someone on £25,000 – slightly under the median national salary of £29,900 – would see their NI bill rise £154 to £2,006.
If you earn £50,000 a year, your NI bill would rise by a whopping £404 to £5,256, while someone earning £75,000 a year would see theirs jump by £654 to £6,033.
How likely is it that the hike will happen?
While the Conservatives ruled out increases to income tax and NI in their 2019 election manifesto, these are exceptional times.
Chancellor Rishi Sunak has publicly stated the need to balance the books and to find a way to pay off the enormous amount of debt that the Government has taken on since the start of the current crisis.
So, while the move might be unpopular, the Government could argue it is necessary to get the public finances back on an even keel.
Having that said, there’s a possibility the Chancellor may well tweak his plan to introduce a blanket NI increase, especially if there is a backlash among Conservative MPs and workers.
If you’d like to discuss the topics mentioned in this article further, don’t hesitate to get in touch with your adviser.
Pension Freedom age set to rise, do you need to change your plans to prepare for it?
The age at which you can take your pension is set to rise, but how might that affect your long-term plans?
From 2028 the age at which you can take your pension is set to rise. The Government confirmed on 20 July 2021 that the Pension Freedom age will rise from 55 to 57 at the end of the tax year April 2028. This means pension holders will have to wait longer to access their savings. The changes are set to be enacted alongside the rise in State Pension age, which the Government says reflects the changing nature of the workforce and the need for pensions to last longer into old age.
But how might it affect your retirement plans?
Anyone who was planning on calling it a day on their 55th birthday might want to think again about how their wealth is distributed. Thankfully with plenty of notice from lawmakers, time is on your side. One change you can make to ensure you have quicker access to long-term wealth is to channel more of your savings towards ISAs. ISAs are not subject to the same restrictions as pensions, so you’ll be able to access the money at an earlier age.
However, this could lead to a smaller overall pot as the tax relief that comes with pensions is extremely valuable. In the first instance, you should not divert any money that comes with extra employer contributions attached.
Unfortunately, the Lifetime ISA (LISA) is not an alternative in this instance. Although the LISA offers generous 25% bonuses up to £1,000 each year, you cannot access the money until age 60, even later than pension freedom’s age.
Pension Freedom loophole
There is however a loophole to the rule changes as they stand currently, which could help anyone who doesn’t want to be affected by the new change in the rules. If you have the age of 55 written into the policy of your pension scheme, you will be entitled to access that money age 55 regardless of the law change. This will count for any pension scheme that has age 55 stipulated before April 2023. As it stands this varies between providers, with some set to move the age automatically to 57.
It is worth checking then what the age on your policy is. If you think you’ll want to access the money as soon as possible, you might consider making the small administrative change that could open your pension savings early. However, before doing so you must consider some of the other implications of changing provider or policy – including exit fees, loss of benefits, costs and loss of investment returns, before making a decision.
If you’d like to discuss any of the themes raised in this article about pension freedoms or your pension more generally, don’t hesitate to get in touch with your adviser.
Rishi Sunak’s pensions tax traps: what to expect
With the Government in need of a way to pay for the enormous cost of the pandemic, pensions are perhaps an easy target for the Chancellor.
The Treasury is reportedly formulating plans for a pensions tax raid in a bid to rescue public finances. According to the Telegraph, Chancellor Rishi Sunak and his team are considering three different reforms to pensions tax relief to help balance the books.
Slashing the lifetime allowance
The first of the reforms being considered is a reduction in the pensions lifetime allowance from £1.073m to £900,000 or £800,000. At the moment, savers who have pots in excess of the £1.073m are hit with a hefty tax charge of up to 55% when they draw down any amounts above the threshold. If this plan goes ahead, it means thousands of extra savers would be forced to pay steep taxes when they withdraw their pension as their pots would exceed the new lifetime allowance.
Scrapping higher-rate tax relief
This has been under discussion for some time and could see the Treasury introduce a flat pensions tax relief rate of 30% or even lower at 20%. Pensions tax relief is where the Government tops up your pension pot to encourage you to keep saving for your future. With pension tax relief, a portion of the money you would have paid in income tax goes into your pension instead. How much depends on whether you’re a basic or higher rate taxpayer.
At the moment, basic rate taxpayers get 20% tax relief, whereas higher rate taxpayers get 40%. That means a £100 pension contribution would cost them just £80 and £60, respectively. If the Treasury presses ahead with this plan, basic rate taxpayers will benefit but higher rate taxpayers will miss out.
Tax employer contributions
The final measure under consideration is a potential new tax on employer contributions. While the details of this plan are thin on the ground, forcing employers to pay tax on employee pensions contributions would heap costs on firms at a time when the economy is still in recovery mode.
What should I do?
In short, nothing at the moment. At present, we do not know if these plans being kicked around in Whitehall will come to fruition. According to reports, it’s unlikely that we will see any movement until the Autumn Budget in November – if at all. However, if you are already sailing close to the £1.073m lifetime allowance cap, it’s worth speaking with your financial adviser to assess your options. While everybody is different, if this is you then you may be better off diverting your pensions contributions into an ISA instead.
However, it’s always best to speak with a professional before taking such a huge decision which could have major consequences. So don't hesitate to get in touch with your professional connections financial adviser contact.
Are you saving enough for retirement? Here’s what to consider when planning
From living longer to cruises of a lifetime - here are a few things you need to consider when saving for your retirement.
There’s no one easy way to calculate how much you’ll need to get by in retirement, as everyone has different goals and aims for how they want to enjoy it. However, there are some general pointers that can help you get a grasp of what you need, and what you need to be saving and investing to achieve it. When planning for your retirement, thinking about how much income you’d like on a monthly basis is a great starting point.
A rough guide to help could be assessing what you spend monthly now, and then taking away bills which will not be there in future (your mortgage, for example, which has a fixed end date). Doing this can help you get a clearer picture of what it costs just to maintain the lifestyle you currently have. A common ‘rule of thumb’ in this regard is replacing about 70% of your salary on an annual basis. This is predicated on the idea that you will have paid off the mortgage, so won’t have that to pay off each month. Think then in terms of percentage income. A £200,000 pension pot that pays 3% per year will pay out £6,000. You might be able to attain more income for that size of pot, but it will involve more risk. It’s also important to think about whether you want work to be a hard stop, or you plan on transitioning over time out of full employment. This can be a good option if your pension pot doesn’t extend as far as you may like yet, and the state pension is a way off from kicking in.
Keeping the state pension in mind is also important. While it may not seem like enormous sums of money, it does form a key part of many people’s retirement plans. The age of the state pension is creeping up slowly, which needs to be kept in mind when planning. Perhaps the best answer to “how much should I save?’ is “as much as you can”, but there are some other factors to consider.
Think of the ‘U’
Saving for retirement is about goals. What do you want, and how long do you expect to want it for? As retirement unfolds everyone has a different idea of what they’ll want to do with that time and money. On average though people’s expenditure tends to follow a ‘U’ shape. That is – when they first retire spending is high because they reap the benefits with tax-free lump sums and access to cash - taking nice holidays or maybe finally putting that extension they always wanted on the house. As they settle into a more normal routine over time though, costs start to diminish (the bottom of the U). Finally, as people enter their later years, costs tend to rise again. This can be from more banal things like getting help in the garden or around the house, to more significant events such as health issues or care requirements.
Lamborghini or Laburnum?
Thinking about your needs in retirement can be framed principally through the kind of lifestyle you intend to lead. The income needs of someone who plans to be at home with grandkids tending to a garden will be very different from someone who intends to jump on cruises and see the world, or buy a fast car. Both choices are fine ones to make, but the former will likely be more frugal than the latter. That being said, if you’re planning to spend time at home, you will likely have to think more about the cost of living there, maintenance and even whether you’ve got equity locked up inside the property.
Live long and prosper
The other big thing to think about is longevity. Not only do you need to be able to replicate a portion of your income via a pension and other wealth on day one of retirement – it needs to be able to last for a long time. While predicting your own lifespan is impossible, there is a guide to keep in mind from the Office of National Statistics (ONS). At the moment a man aged 55 has a life expectancy in the UK of 84 years according to the ONS. This rises to 87 for a woman. While these are only averages, this is a significant period of time by any measure. While taking an income from wealth is perfectly possible, the more you save early on, the more time it has to grow and the better your outcomes will be overall. For those that don’t have as much saved at retirement as they would have liked, it means either adjusting their lifestyle accordingly, or taking more risk with their pensions (something which brings its own challenges).
The good news is, a lot of this can be addressed right now. Saving regularly and investing that money to an appropriate level of risk for you, at all stages of your adult life, is crucial. Retirement planning needs to be done as soon as reasonably practicable, because the earlier you start investing in a pension, the more it will be worth.
Your professional connections financial adviser contact can help you consider these plans more carefully. Don’t hesitate to get in touch.
Team GB 50p: can you make a mint from collecting rare coins?
The Royal Mint has introduced a new commemorative 50p coin for the Japan Olympics, but what other rare coins are out there, and could you make money on them?
The Royal Mint has released a new 50p collectors coin to celebrate Team GB at the Tokyo 2020 Olympics. The coin, which sold for £20 on The Royal Mint’s website, proved to be an immediate hit with collectors and is now out of stock, never to enter general circulation again.
At the time of writing, the coin, in its original packaging, was listed for over £35 – just two weeks after first being minted. However, this is far from the only novelty coin of value. If you find what you think is a rare 50p coin – or indeed other denominations, or even vintage money – what should you do with it?
The important thing to remember with rare coins is it is only ever worth what someone is willing to pay for it. Stories routinely pop up in the tabloids about coins selling for hundreds of pounds above face value – but this is quite rare.
As a start it is worth looking at the coins you get back when spending cash in the shops. In COVID times people are less willing to use physical cash meaning the coins in circulation will definitely be less than usual, which can be a good thing for those selling to collectors!
Cash usage has been declining for years but became particularly precipitous during the pandemic, according to UK Finance.
For more dedicated coin collectors a common practice is to go to the bank and make withdrawals of specific denominations. For example, taking out £200-worth of 50p coins would give you 400 chances at finding a rare one.
Sift through these and you may just find some rare ones. The rest of the 50ps can then be returned to your bank account. Beyond collecting coins such as the 50p or £1 – looking for rare vintage coins can be a niche pursuit that involves valuations from professional coin collectors.
There’s a universe of vintage coins out there and values fluctuate wildly. Old pre-decimalisation money such as shillings and crowns likely won’t have much value, but the market extends all the way to Victorian coinage and older. That being said the likelihood of finding old Roman coins, Spanish gold doubloons or even an Anglo-Saxon hoard are vanishingly rare!
Here are a few more common coins to look out for though, which are much more likely to turn up in your change and perhaps fetch a better-than-face-value price.
To look at the rarity of coins you may find, resources such as Change Checker are a great place to start.
Beatrix Potter – The Royal Mint released a series of coins commemorating the work of Beatrix Potter in 2016. While some have very high circulation rates, other such as the third Peter Rabbit coin had very low issuance numbers and are therefore much rarer.
2012 Olympic coins – The Royal Mint produced a whole series of coins to commemorate the 2012 Olympics. There are 29 different Olympic coins with varying degrees of rarity. For example, over two million swimming 50ps were made but much rarer is the Offside rule coin or Triathlon coin which had only just over one million produced each.
A-Z 10ps – the 10p A-Z coins, launched in March 2018, all reflect one letter of the alphabet which relates to Britain. For example, a commonly found 10p is the K for King Arthur. Much rarer in this series is the Z for Zebra crossing.
Kew Gardens - perhaps one of the rarest 50p coins to enter circulation, the Kew Gardens 50p frequently sells for hundreds of pounds. Definitely one to keep an eye out for, with just 210,000 minted in 2009, it is the rarest 50p according to Change Checker.