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.
The World In A Week - Are we there yet?
The markets continued to be sensitive, with increased volatility being blamed on the stubborn concerns over COVID-19’s Delta variant and the risk that this poses to the reopening of economies.
Volatility was apparent in the Asian equity markets, which saw the Chinese authorities cracking down on companies that they view as having financial stability risk, exacerbating inequality, or challenging the Government’s authority. Previously, their main target was their own technology sector, however this intensified with an overhaul of China’s private education sector. Firms operating in this sector are now banned from making profits, raising capital, or going public. Concerns have increased as to what sector may be next for China’s hand. This has prompted a hastily organised meeting with the major investment banks to reassure them that the crackdown on the private education sector was not meant to hurt other companies. This adds another reason to remain cautious on Chinese equities.
The Federal Open Market Committee (FOMC) issued a statement last week, confirming they will continue to assess the economic situation before paring back their quantitative easing programme. It is sensible for the world’s most influential central bank to be data dependent, however Jerome Powell, the Chair of the Fed, knows that managing expectations is critical. While there was a unanimous vote to keep rates unchanged and asset purchases at $120 billion a month, there were also heavy hints at reducing these emergency measures which was something already under discussion.
During the subsequent press conference, Jerome Powell confirmed that the Committee had already taken a “deep dive” into how to go about tapering asset purchases, with the US economy having made significant progress towards the dual mandate of the Federal Reserve of achieving maximum employment and price stability.
This month we have the meeting of minds at Jackson Hole, which has typically been the breeding ground for co-ordinated forward guidance from the world’s policymakers. Expectations are high for more detail on when the emergency monetary measures will eventually be tapered. The expected signalling from Jackson Hole is likely to be followed by a formal decision from the FOMC in the fourth quarter.
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 2nd August 2021.
© 2021 YOU Asset Management. All rights reserved.
The World In A Week - Freedom Day – the drive to move forward
The earnings season is finally upon us, and with it came a rise in volatility. The Vix Index, a measure of market volatility, crossed above 18, still relatively low levels in historic terms, but an increase nonetheless versus the last few weeks. All global indices finished the week in negative territory, with the UK’s FTSE 100 index retracing over -1.5%. In the fixed income market, despite stronger than expected CPI, PPI and retail sales, yields surprisingly contracted, continuing to puzzle both fixed income and equity market participants alike.
Though the earnings season in the US is still in its early stages, those businesses that reported have been reasonably positive. Of those circa 40 companies, 85% have beaten analyst forecasts on both Earnings per Share (EPS) and sales expectations. However, unless the reported numbers are particularly stellar, the market’s reaction becomes rather muted. Therefore, it would appear the market is really looking for knock-out numbers to get excited and had already priced in the expectation for the reporting season.
This is probably not surprising because, despite the slight pullback we have seen, many equity markets are trading at or near their all-time-highs and investors are looking to see whether the marginal demand coming through has been strong enough to offset the marginal costs of re-opening. Economic trends and the consumer do appear to be in good shape. After the last 18 months we have had to endure, it is a fair assumption to say people want to get back to some sort of normality, but we cannot be too blasé about where we are at in the fight against the Coronavirus.
The infection numbers remain high in certain parts of the US, and in the UK we have seen a marked pick up. In other areas such as South Africa, the World Health Organisation (WHO) has warned about a surge of infections after days of riots and looting, sparked by the jailing of former President Jacob Zuma, and in Singapore and Australia stark rises in cases have been reported.
Today is dubbed “Freedom Day” in the UK, when the UK Government seeks to end all legal, social and economic restrictions imposed to mitigate the effects of the COVID-19 pandemic. Let us hope this proves the right move to have taken.
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 19th July 2021.
© 2021 YOU Asset Management. All rights reserved.
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.
Extra savings stashed away during lockdown? Here are some ideas for what to do with it
Brits have stashed away an extra £180 billion in savings during the pandemic. If you built up some extra cash in the last year, here are some ideas for what to do with it.
Brits have stashed away a mountain of cash during the pandemic. It makes sense – people have had to stay home and thus saved money on eating out, going to the pub and big holidays abroad. If you were one of those lucky enough to build up some extra cash during the past 15 months, chances are you’ve asked yourself what you should be doing with it.
Here are four sensible things you can do with your lockdown savings.
Pay down debts
This might be an obvious one, but it’s worth mentioning. While it’s important to have an emergency supply of money, just in case the boiler breaks, it might be worth using some of your excess cash to pay down your debts, particularly if you are being charged lots of interest. If you don’t have any credit card debt or personal loans, it might be worth paying off your mortgage. By doing so, you may be able to reduce your term and therefore the overall level of interest you’ll pay. That might be a sounder idea than leaving it in a savings account earning less than 1%. However, before you do that, check your deal’s terms and conditions to make sure you don’t have to pay any fees for overpaying your mortgage.
Make a rainy-day fund
Once you’ve covered high-interest debts, the next thing to do is build up your ‘rainy-day’ fund. This fund is essential whether you’re working or retired. If you’re working, loss of income from redundancy can have a fast and unanticipated impact on your finances. Saving between three and six months’ worth of your salary is ideal to cover your costs while you look for a new job. If you’re retired, having a rainy-day cash fund can be vital if you’re drawing an income from your pension or ISAs and the markets take a dip. Selling investments to fund your lifestyle in a bad market crystallises losses and will leave your portfolio permanently worse off. Instead, a cash buffer will tide you over while markets recover.
Put it in your ISA or pension
If you have the first two ideas covered already, the next thing to think about is whether that cash can be sheltered tax-efficiently. Make the most of your annual ISA allowance, or even contribute more to your pension. That cash can be put towards investments to grow and bolster your long-term wealth. Saving in cash is only really a good idea if you need the money in the short-term (I.e. for a rainy-day fund). Anything else that is earmarked for long-term wealth growth should be working harder as an investment.
Spend some of it
Finally, it is okay to actually spend some of the money you’ve saved. Of course, do that in a responsible way. Does the dining room need redecorating? Maybe you want to take a quick holiday somewhere warm? Spending money shouldn’t be taboo when it is well-spent (and sometimes going for a slap-up dinner comes under that too!). Just make sure you’ve got your debt under control and your emergency cash pile in place first.
There are of course other tax-efficient considerations to make in this circumstance, such as gifting to loved ones if you are in a position to do so. If you’d like to discuss the ideas mentioned in this article more, don’t hesitate to get in touch with your adviser.
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.
Looking for love? Then watch out for romance scams
Romance scams have boomed over the past year as fraudsters switched their attention to those searching for companionship during lockdown.
Figures from UK Finance, the trade body, reveal a 20% increase in the number of bank transfer romance frauds in 2020. Overall, victims lost £68m – or more than £7,800 each – last year to this type of fraud, according to the trade body.
Romance fraud is a particularly vile type of scam where fraudsters will pose as a potential love interest on a dating website who is looking for a long-term relationship. Usually over many weeks or even months, the fraudster will try to gain the trust of an unsuspecting victim by trying to convince them that they want a genuine relationship. Once that trust has been built, the criminal will typically ask for cash to help pay for bogus medical bills, to fly over to be with the victim or for some other fictional emergency. However, once the victim sends the money, the fraudster typically flees and is never heard from again.
Katy Worobec, managing director of economic crime at UK Finance, says: “With the rising use of online dating services during lockdown, criminals are using clever tactics to exploit people who think they’ve met their perfect partner online. “Romance scams can leave customers out of love and out of pocket, but there are steps people can take to keep themselves or their family and friends safe – both online and offline.” Romance scams can be highly sophisticated, and therefore spotting them is not always easy.
However, below are some tips you can use to make sure you stay safe online.
- Be suspicious: If you are asked for money by someone you haven’t been speaking to for that long, or by someone you have never met, you should assume it’s a scam.
- Check their profile photo: Typically, scammers will steal the profile picture of someone else and pass it off as their own. However, you can tell if someone has done this by saving the photo and conducting a reverse image search on Google. If the name they gave you doesn’t match the one on your image search, the chances are you’re talking to a scammer.
- Ask friends and family: If you have any doubts that the person you are talking to is not real, talk to friends and family to see what they think.
- Guard your personal information: It’s not only money a fraudster may be after, so do not share personal documents such as your driver’s license or passport.
- Other tell-tale signs: Instead of asking you for money, they may instead ask you to take out a loan for them, or to transfer money to someone on their behalf. You shouldn’t do either of these things, regardless of what reason they give you.
- Tell the authorities: If you think you’re speaking to a scammer, or you think you may have been the victim of romance fraud, report it to Action Fraud on 0300 123 2040 or via actionfraud.police.uk.
The World In A Week - It’s the Hope (and maybe the Earnings Expectations?) that Kills You
While the European Football Champions have now been comprehensively determined, albeit not in England’s favour, we had another week of seemingly placid market returns as they remain decidedly undecided about economic events and potential future outcomes. The MSCI All Country World Index was down -0.5% in GBP terms, while leading markets included the UK and the US. Chinese equities continued to sell off heavily, with MSCI China returning -4.7% for the week, dragging the wider Emerging Market index lower.
China has been giving investors cause for concern for some weeks now. Economic activity in the Middle Kingdom has been slowing, as illustrated by the closely watched “credit impulse” which peaked last year and has been declining for the year to date. This measures public and private credit creation and tends to foreshadow economic activity. As a response to this, last week the People’s Bank of China cut interest rates in order to inject more stimulus into the economy. China’s economic health is very important to the global reflation narrative, and the YOU Investment team together with other investors will be monitoring developments here closely.
Another key focus for markets has been the start of Q2 earnings season in the US, that kicks off this week as the large US banks have announced. The largest US companies are expected to reveal year-on-year earnings per share growth of +63%, which is the largest jump since the emergence from the depths of the 2008 crisis. What is different this time is that the S&P index of large US stocks is at an all-time-high and is trading on a very expensive multiple of 31x earnings. Should these lofty earnings expectations disappoint, there is potential for a market upset.
It has been widely documented that humans (i.e. investors) are more psychologically averse to dashed expectations and losses than they are to upside news, a feeling readers will no doubt be all too familiar with this morning.
The World In A Week - Jobs for All
Last week was broadly positive for markets, with the MSCI All Country World Index of global stocks rising +1.3% in GBP terms. This was led by UK Equities, as well as Emerging Market names in the Asia Pacific region. Within Fixed Income, higher risk bonds outperformed higher quality bonds.
The Bank of England’s Monetary Policy Committee met on Thursday and voted to leave the base interest rate at 0.10%, to maintain monetary stimulus for the recovering economy. Whilst these outcomes were unsurprising, there have been increased calls from members of the Committee to roll back the support for the economy sooner, citing building inflation pressures observed both in the UK as well as abroad.
An economic event of greater consequence took place on Friday, when data on US non-farm payrolls was released for July. These showed that the US economy added 943,000 jobs for the month, which was more than the 870,000 predicted by economists polled by Reuters. This data is illustrative of an economy that is recovering briskly, adding further pressure on the Federal Reserve to begin “tapering” their purchases of government bonds and mortgage back securities sooner than the market currently anticipates. Central banks across the world are walking the tightrope between ensuring the economy has adequate support versus not allowing inflation to run out of control.
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 9th August 2021.
© 2021 YOU Asset Management. All rights reserved.