The new social care cap: how does it work, and how much will I pay?
After years not addressing the issue, the government has finally moved to implement new rules for the funding of social care.
While the government faced a significant rebellion from its own MPs, the measures passed Parliament on 23 November, making them all but inevitable. The new rules will see a cap of £86,000 for anyone in England to pay for care in their lifetime. This means that no one will ever have to pay more than £86,000 towards the cost of their own care.
The upper capital limit – which determines eligibility for care support – will also rise. It is currently set at £23,250 but will increase to £100,000 under the government’s plans. This means anyone with personal wealth and assets worth less than £100,000 will be eligible to receive additional financial support and will never pay more than 20% of these assets per year.
Anyone who has more than £100,000 in assets will receive no financial support from their local council.
The lower capital limit – which is the threshold below which people will not have to pay anything – will increase from £14,250 to £20,000. However, if someone is earning an income of some sort, such as from a pension or other investments, they may have to draw upon this to pay some costs.
The new rules will be enforced from October 2023, so for now the existing system remains in place and any contributions made before then won’t count towards the cap. In terms of what is covered under ‘care costs’ – it is anything relating to the everyday needs of someone who is unable to perform basic tasks for themselves, such as cooking, washing and dressing. It does not include day to day living costs such as buying food or bills. In the case that someone is no longer able to live independently and has to move to a care home, this would be covered by the new caps and allowances.
There are some further complexities to the new rules too. Only savings and income contributions towards care costs count towards the £86,000 cap. Any contributions from the local council or other financial assistance won’t.
The plans also don’t protect people from having to sell their house to pay for care. However, anyone who faces this situation can apply to delay the sale of their home until their death – when the bill for the care would come due and leave family members to settle the estate.
The World In A Week - Data, data everywhere, but what should we think?
Written by Shane Balkham.
“A turn in sentiment has seen whip-sawing changes in markets and is creating a volatile environment for the end of the year.”
The Rime of the Ancient Mariner seems rather apt at this particular juncture. While the albatross heralded stormy conditions to sailors, data is signalling similar volatile conditions for the coming weeks.
The US employment for November showed that 210,000 jobs were added last month, significantly fewer than the expected 550,000. However, overall unemployment fell to its lowest level since the pandemic began. This was greeted with a sharp drop in US equities, as investors retreated from large technology companies, as evidenced by the fall in the Nasdaq index.
Employment data is a key indicator for the Federal Reserve, so when Chair Jerome Powell gave testimony to Congress last week, in which he signalled his support for an acceleration in the wind-down of their quantitative easing programme, markets concluded that coupled with the jobs data, faster policy tightening was assured. The narrative should be about an economy getting stronger where extreme emergency policy is no longer needed or appropriate. This suggests an environment where we can expect interest rates to rise and tapering to be complete sooner rather than later.
We have the meetings of both the Federal Reserve and the Bank of England next week, where expectations are high for the rhetoric to confirm this story. The Federal Reserve will also publish their updated ‘dot plots’ giving us an indication of where they expect short-term interest rates to be over the coming months.
Before the meeting of minds across both sides of the Atlantic, we have the US inflation reading on Friday where the top end of forecasts has a reading in excess of 7%. This should provide weight to the Federal’s decision, especially now the word ‘transitory’ has been retired from their lexicon. The twist in the tale though is we have the new variant of COVID-19 to concern us. Data surrounding Omicron’s virility and potency has yet to be confirmed, although the latest news suggests that this variant could be milder than Delta.
The move towards normalisation was always likely to be treacherous and fraught with the risk of policy missteps. Celebrations during Thanksgiving might have been premature as there are stormy seas to navigate before the next holiday. With inflation data for the US due this week, and the heavy weight policy makers meeting next week, it pays to be prudent and have an appropriately diversified portfolio.
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 6th December 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - The price is right?
Written by Millan Chauhan.
Last week, UK inflation data came out revealing that the cost of living rose by 4.2% in the 12 months to October 2021 which exceeded initial estimates of 3.9%. The figure is just over double the Bank of England’s target rate and is now at a 10-year high. The Bank of England decided earlier in November to maintain interest rates at 0.1% and is set to meet later next month on 16th December to assess the domestic monetary policy situation. The sharp rise in inflation has been attributed to rising gas and fuel prices but only marginal increases for items such as food. Hence, price rises are being experienced at billed expenditure level which is often paid by direct debits or prepayments and is arguably less immediately noticeable to the end consumer. However, the price increase seen at a weekly grocery shop level has been much less high, hence consumers may not directly be seeing inflation in the market, but it certainly exists.
Elsewhere in the US, President Biden’s new infrastructure bill was successfully approved by the House of Representatives and signed into law, which on paper is a $1.75 trillion spending plan that includes spending of $550 billion on the country’s bridges, airports, waterways, and public transit lines. The bill will also devote resources towards funding new climate control and broadband initiatives which includes creating more electric charging point terminals.
Finally, numerous states in the EU are re-entering lockdowns or implementing social restrictions following a spike in the number of COVID-19 cases as we head into the winter season. European countries are operating a different severity of restrictions with the Czech Republic’s Prime Minister, Andrej Babis boldly stating that non-vaccinated people would be banned from attending public events and services. According to the European Centre for Disease Prevention and Control, 66% of individuals in the EU region are now double vaccinated but this includes countries with a much slower uptake of the vaccine which has resulted in a much higher number of reported cases.
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 November 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Fowl play
Written by Shane Balkham.
The release of October’s US consumer price index (CPI) data showed that prices rose at their fastest pace since 1990. This figure was above expectations and reflects the ongoing impact of supply shortages. US inflation now sits at 6.2% year-on-year and is looking less transitory with each monthly reading, while political pressure is building for policymakers to act more aggressively.
Not wanting to miss an opportunity to increase his beleaguered approval rating, President Biden used the sharp tick up in inflation to add pressure on Congress to pass his $1.75 trillion spending bill. Biden’s claim is that 17 Nobel Prize winners in economics have said that his plan will ease inflationary pressures. This has been countered by some Republicans who see a huge injection of spending will make matters worse. The partisan politics of the US are not getting any better, which adds further pressure on the President for his nomination for the next Chair of the Federal Reserve.
Earlier in the summer, Jerome Powell looked to have a second term secured, however some unpalatable trading from two senior officials has weakened his position. We know that he has had his discussion with the President, but last week Joe Biden also met with Lael Brainard, an incumbent Governor of the Federal Reserve. This is important, as a new head of the Federal Reserve is an unknown quantity and will affect the market expectations for interest rate rises next year.
2022 already looks to be a difficult year without the weight of a new Chair at the Federal Reserve. There is significant political tension for President Biden, coupled with the Midterm elections less than a year away, suggesting the decision is not as clear as it was a few months ago. Thanksgiving is next week, and the decision over the Chair of the world’s most important central bank was promised to have been delivered before then. At this point, Biden cannot afford to look like a Turkey.
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 15th November 2021.
© 2021 YOU Asset Management. All rights reserved.
Rishi Sunak’s Autumn Budget: what it means for your money
The Chancellor, Rishi Sunak, has delivered the government’s Autumn Budget.
The measures contained within it set the tone of the UK’s finances for the next 12 months. And while there are some fresh measures in there, it is the distinct lack of action on many issues that may have the biggest effect on household finances.
Here are some of the big changes, and several things that weren’t touched, but will affect your finances.
National Insurance and dividend tax hike
Not announced in the Budget per se, but perhaps the biggest shift in government taxation in many years, National Insurance and dividend taxes face a 1.25% hike to help pay for health and social care.
The hike will add £130 a year to someone on an income of £20,000, while those on a higher income of £50,000 will see an extra £505 come out in taxes.
With the dividend tax hike there’s no tax to pay on the first £2,000 of earnings, but beyond that you’ll pay an extra 1.25% on top of the current rates. That means 8.75% for basic rate payers, 33.75% for higher rate payers and 39.35% for additional rate payers.
There were a raft of other personal finance-related measures including:
- A hike in the living wage to £9.50 per hour
- A cut to the Universal Credit taper rate to 55%
- An alcohol duty reform to simplify the way beer, wine and other drinks are taxed
- Fuel duty being frozen for a 12th year
But perhaps more noticeable was the absence of certain provisions.
What was missing from the Budget?
Sunak avoided making certain changes that are in and of themselves a form of taxation. There was also a distinct lack of help in regard to economic issues that are plaguing households at the moment.
Perhaps the biggest aspect of the tax system that Sunak left untouched was allowances. This has the effect of creating a form of stealth tax. But how does that work?
By leaving an allowance for say, Income Tax, at the same level for multiple years isn’t an out and out tax rise. But as the general earnings of the working population increase over time – be that from becoming more productive or purely to keep pace with inflation – it means progressively more and more people fall into the higher bands for tax purposes.
Take the example of Inheritance Tax (IHT). The banding of IHT has remained static at £325,000 for years. The Office for Budget Responsibility (OBR) predicts 6.5% of estates will be liable to pay the duty by 2026 – up from 3.7% in 2020. By simply ‘doing nothing’ the government is increasing its tax take over time.
The same is true for a raft of other allowances which remain static – from pensions annual allowances to ISA limits, capital gains tax and others. The more they stay the same, the more the government rakes in.
This is all more pressing than ever in the current economic climate, which is accelerating the issue, namely inflation. In order to keep up with inflation, households are having to seek higher earnings or cut their costs. Sunak did nothing to assuage inflation fears, despite hints he might cut the VAT rate on energy bills.
Overall, the impact of squeezing allowances and rising inflation could leave household incomes stretched for the foreseeable future.
NS&I Green Bonds – what are they, and is there a better alternative?
National Savings & Investments (NS&I), the government-backed savings provider, has launched its first ever green bonds.
So, what is the deal with these brand-new ethical savings accounts?
Anyone saving via the bond will receive 0.65% AER, fixed for three years. You can save a maximum of £100,000 but start with as little as £100 if you like. The money is locked away for a three-year minimum. Because it is a bond rather than an ISA, interest on the savings is taxable when the bond matures.
What’s green about them?
The bonds are the first directly offered to the public with a ‘green’ focus. The government, with climate change high on the agenda, has begun issuing green gilts to institutional investors, but saw the opportunity for private citizens to get involved as well.
The money raised for the green bonds will go directly towards investments in government green projects and initiatives. Any money the bonds raise will be matched by HM Treasury too.
At the time of writing, there is no further detail on exactly what projects this includes. But the government says it intends to update on this in due course.
How it compares
Savings rates are poor across the board at the moment. But even by these standards, ethical considerations aside, the NS&I green bond is an awful offer.
For a three-year bond the current top offer comes from JN Bank, which offers 1.81% interest over three years. This is followed by Zenith Bank at 1.78% and United Trust Bank at 1.75%.
Ultimately, then, the only reason why you should consider investing in the green bonds is if you are highly motivated to lend your money to the government to aid green projects.
What you should do instead
In reality, even the aforementioned savings rates are poor. The Bank of England recently warned that inflation is headed to 5% by the Spring, which means that any money growing by these rates is still losing value in real terms.
Instead, money that isn’t needed in the near future should be fully invested in markets. While the returns aren’t guaranteed, generally speaking, it is a better long-term approach to wealth growth.
Ethical considerations in investing are an increasingly popular and sought-after approach. Please do get in touch with your adviser if you’d like to learn more.
Rishi’s rising tax burden makes good wealth management a top priority
With the new Budget delivered by Chancellor Rishi Sunak, the tax burden on ordinary citizens of the UK is now at its highest level in 70 years.
From frozen personal allowances to National Insurance and dividend hikes, at no other time since the 1950s have we paid so much of our livelihoods to the state.
The ethical, political, and moral arguments around this are for a different blog, but there is an important overarching theme to respond to such changes – how to make the most of what we’re left with after the state has taken its levies.
Good wealth management has always been about making the most of your money in any given situation. If that situation changes, so too it is an adviser’s job to help you adapt to those shifts.
Just because the burden is now higher on paper doesn’t mean you can’t continue to benefit from good planning for your wealth.
Tax planning
A critical aspect of this comes down to good tax planning. Tax planning is a catchall term that describes several activities.
First and foremost is ensuring all your personal allowances are properly used. This includes everything from ISA limits to pension contributions and dividend allowances. Maximising your allowances is extremely important. The ISA limit is relatively generous and everything inside this is extremely favourably treated in tax terms.
Likewise, your pension has major contribution benefits in the form of tax relief. The issue for pensions is that tax treatment can become complicated when drawing down from your pot, making advice and rigorous planning essential.
There are longer-term considerations too, such as inheritance tax (IHT) planning. IHT is a booming tax that ensnares more and more households every year. While ultimately not ‘avoidable’, there are a series of allowances such as gifting and seven-year limits that let you give away wealth tax free.
Where planning comes in is through careful forecasting and management of your income and outgoings. Careful projection of how much you’ll need at any given age will be key in ascertaining how much you can give away early.
Investment
The other key aspect of good wealth management, which ultimately feeds from the above tax planning considerations, is how to grow your wealth once it is correctly sheltered.
Inflation, transitory or not, is running away at the moment. And while it may return to more typical levels later in 2022, the long-term 20-year average is still around 2.8% according to the Bank of England.
What that means is that your money has to work harder to grow in value or return an income that stays ahead of rising prices. This is a key area where good wealth management comes in to protect and grow your money via the stock market, bonds, and other financial assets.
The truth is, doing nothing is a disastrous alternative. Be it through taxes or inflation (often called a tax on saving), the forces looking to erode your wealth are too strong to ignore.
Rising bills: here’s what to look out for to keep you on financial track this winter
With the economy roaring back to life as we emerge from the pandemic, household costs are rising fast to meet rising demand for certain goods and services.
Building wealth, while a long-term priority, can be hampered if a family’s budgeting gets off track. With inflation rising - 2.9% according to the most recent Office for National Statistics data – and expected to peak above 4%, now is the time to take stock of your finances and look again at where you can save money.
Inflation isn’t the only current worry. The tax burden, as set out by the Chancellor recently, is set to rise to a 70 year high.
So, what can you do to rein in spending, or cut costs where possible? Here are a few ideas.
Energy bills crisis
The hike in energy bills has perhaps been the highest profile issue for households in recent weeks. Rocketing gas prices has led to the collapse of a slew of energy providers, while surviving firms have pulled any cheap deals available.
The days of energy switching to get a better tariff, are for now at least, over. This makes heating and electricity one of the standout cost rises households now face.
While households are protected by the energy bills cap, currently £1,277 per year, that could also be set to rise to over £1,500 in the Spring. It is essential then instead to look at how to cut the actual costs of those bills.
Basic measures should be taken to ensure your house is as energy efficient as possible. Draft excluders, radiator foils and even just turning the thermostat down a few degrees and wearing woolly socks can make a big difference.
Of course, if you’re older or not in perfect health, it’s not advisable to leave your house cold. If you’re in this position, making sure you have access to the Winter Fuel Payment could be a big help.
Cut unnecessary costs
Now is the time to look at your spending habits and decide if anything can be cut out. Gym memberships you don’t use, streaming services you never watch, delivery subscriptions you don’t maximise, should all go.
While taken individually these costs may seem minor, collectively and annually they can add up to thousands of pounds.
Another area where costs are rising are weekly food shops and dining out. Lowering costs in this area can be challenging, but it’s important to be vigilant with changing costs. Food prices can swerve up and down one week to the next, so having a spending limit and trying to stick within it is key.
Make your savings work harder
The more long-term aspect of the issue of rising costs is ultimately how to maintain wealth growth while keeping your saving levels up. Working hard to keep your costs under control is the starting point for being able to maintain good habits with regards to savings and investing.
Over and above that, ensuring strong wealth growth is essential too. Inflation is eating away at more of our savings’ value, so keeping money in low interest savings accounts is essential. Thankfully with good wealth management in place, this is eminently achievable.
The World In A Week – Inflation – we’re bubbling hot, hot, hot!
Written by Richard Warne.
For those of you as old as me, you may well remember Pato Banton releasing a song called “bubbling hot” back in 1992, and this is how inflation is acting right now. On Friday, the US Consumer Price Index (CPI) came out at a whopping 6.8% year-on-year increase, inflation is at a 40-year high, and both outcomes probably put to bed the notion that inflation is merely transitory.
As the end of 2021 fast approaches, there are many varying factors that markets are getting to grips with. It has only been a few weeks since the discovery of Omicron, the new COVID-19 variant, and this has naturally caught investors’ attention. At the same time there has been huge attention on the Fed’s taper/rate hike plans. However, against these concerns, it must not be forgotten that markets are performing strongly, anchored by robust consumer strength and continued upside of earnings revisions going into Q4 and next year.
Equity markets have been volatile over the last few weeks, and last week saw volatility swing to the upside with most regions posting returns of at least +2.0%, the MSCI All Country World Index was +3.0%, while the UK market delivered +2.2%. Last week’s recovery not only reflected these strong fundamentals but further indicated that investors may be growing increasingly comfortable with an accelerated taper/rate hike timeline to contain what has been some “hot” inflation prints.
Though last week’s US CPI print of 6.8% was eye-watering, it was perfectly in-line with expectations. So, did investors give a sigh of relief that the number printed was not way beyond expectations? However, the inflationary environment is a new reality, as is the ever-increasing spread of the Omicron variant of the virus, so could this have further impact on supply chain challenges? This is a topic that has had much airtime over prior months. Costco in the US reported Q3 earnings last week and comfortably beat market expectations. The Company did comment that 79% of its import containers had been delayed by 51 days on average.
Earnings, valuations, inflation, Fed policy responses, and the continuation of the virus are just a few of the topics the market continues to grapple with as we see out the year and will possibly have an impact on how investors think about positioning for next year.
As this is the last ‘World In A Week’ for 2021, may we wish you all a fantastic Christmas and a Happy New Year. We will return on 4th January 2022.
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 13th December 2021.
© 2021 YOU Asset Management. All rights reserved.