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In 2020, the government spent an unprecedented amount supporting the economy through the Covid-19 pandemic. The economic consequences are expected to be felt for years to come and will no doubt influence policy that will affect personal finances.

For the 2020/21 tax year, public sector net borrowing – the difference between public spending and total receipts from tax and other sources – was £394 billion. That’s a huge £339 billion higher than anticipated when Covid-19 restrictions were first put in place in March 2020.

The significant deficit is down to a combination of changes in the economy and paying for government measures, like the Coronavirus Job Retention Scheme.

According to the Institute for Government, £82 billion has been used to support households, £71 billion has gone to supporting businesses, and an additional £127 billion has been used to deliver Covid-19 public services.

However, on top of these expenses, restrictions also affected the economy, leading to tax revenues falling by £106 billion. This includes taxes falling in a range of areas, from business rates falling by 39% to fuel duty falling 21% as families were told to stay at home. The UK now faces its largest deficit in peacetime.

Over the coming years, the government will have to make some tough decisions about how they’ll repay the amount borrowed.

Covid-19 restrictions led to the worst recession in 300 years

The social distancing restrictions put in place to limit the spread of the virus forced many businesses to close or severely restrict operations. This caused economic activity to plummet in the second quarter of 2020 by 22% when compared to the end of 2019. Overall, 2020 economic activity was 9.9% lower than the previous year.

The most significant recession before this was over 300 years ago, when temperatures in the UK plunged to around -12˚ Celsius. This “Great Frost” of 1709 caused widespread flooding, devastated agriculture, and caused further hardship.

While we don’t have to contend with flooding after the pandemic, there will be other challenges. The Office for Budget Responsibility (OBR) predicts a long-lasting impact. Even in 2025, the economy is expected to be 3% smaller – around £40 billion less – than it would otherwise have been.

The ongoing impact is despite the government’s decision to spend now to limit long-term costs. For example, by supporting businesses through the Job Retention Scheme (furlough scheme) it’s hoped that the economy will be able to recover quicker as restrictions ease and job losses are minimised. If the economic output was to shrink by 3% despite these steps, national income would fall by around £70 billion.

Of course, the pandemic is still affecting lives and the economy now. The vaccine programme has meant the UK has started to lift restrictions, but further waves could mean more time in lockdown. As a result, it’s difficult to predict how Covid-19 will affect the economy in the long term or even this year.

Paying back the cost of Covid-19

As the vaccine is rolled out and health concerns lessen, attention is now turning to how the UK will pay back the money.

Despite rumours, the chancellor did not increase taxes affecting personal finance in this year’s Budget. However, he did bring in widespread allowance freezes for five years, effectively increasing taxes in real terms. It’s important these freezes are part of your financial plan as they could affect your tax liability in the coming years.

It’s still expected that some taxes will have to increase once the pandemic has passed to plug the gap left in public finances.

In his Budget speech, chancellor Rishi Sunak said: “The amount we’ve borrowed is comparable only with the amount we borrowed during the two world wars. It is going to be the work of many governments, over many decades, to pay it back. Just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”

While we can’t predict how allowances and taxes will change in the coming years, it is important that individuals ensure their financial plans continue to reflect announcements. Making use of allowances to manage tax liability and ensuring you’re on sound financial footing can put you in a strong position even as we start to pay back the cost of Covid-19. It’s important you carry out regular reviews of your plan to incorporate any changes that are announced.

If you’d like the help of a finance professional when reviewing your plan or have questions about what changes mean for you, please give us a call.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

There are more than five million self-employed workers in the UK, according to government statistics. This figure is rising, with around one in six people now working for themselves. There are advantages to being self-employed, but some workers could be missing out on benefits worth thousands of pounds compared to their traditionally employed contemporaries.

The average annual replacement cost of typical employee benefits is £9,586, according to calculations from Royal London. This means self-employed workers must earn almost £28 extra per day to match the benefits of employed workers. While some of the benefits used in the calculation aren’t regular occurrences, such as carer’s leave, others play an important role in financial stability.

So, what should self-employed workers focus on when trying to bridge the gap?

Sick pay (calculated replacement cost: £1,154)

As a self-employed worker, being sick usually means having to take unpaid time off work and delaying projects you’re working on.

In contrast, most employees can benefit from Statutory Sick Pay of £95.85 per week if they’re too ill to work. This is paid for up to 28 weeks. In addition, some employers will offer sick pay as part of their benefits, which may be an employee’s full wage, or a portion of it, for a defined period.

It’s important for self-employed workers to have an emergency fund to cover short-term illnesses. However, you also need to consider the impact a long-term illness could have. Financial protection can provide security when you need it most. When thinking about illnesses, there are two main options to consider.

  • Income protection: This would pay a regular income, usually a portion of your typical income, if you became too ill to work. It would provide an income until the policy ends, you return to work, or you retire. There is usually a deferred period, 12 weeks for instance, before the policy starts paying out, so it’s not suitable for short-term illnesses.
  • Critical illness cover: This type of policy pays a lump sum on the diagnosis of certain illnesses, such as cancer or a stroke. It can give you more freedom to take time off work and adjust or pay off large outgoings, such as your mortgage, but will not provide a regular income.

The cost of financial protection products will depend on your health and lifestyle. If you think you could benefit from such products or would like to discuss them further, please give us a call.

In addition to sick pay, some employees will also benefit from health insurance through their employer. While you can rely on the NHS, health insurance could enable you to see a medical professional quicker and potentially have access to a wider range of treatments. It is possible to take out private health insurance, but, again, the cost would depend on your health and lifestyle, as well as the level of cover.

Pension contributions (calculated replacement cost: £1,500)

Most employed workers are now automatically enrolled in a workplace pension, helping them save towards retirement. Employers must also contribute a minimum of 3% of an employee’s pensionable earnings, boosting their savings. Some employers will contribute more than the minimum amount.

While self-employed workers can open and contribute to a pension, they miss out on the employer’s contributions. For someone earning a salary of £30,000 with an employer matching their 5% contributions, this benefit is estimated to be worth £1,500.

While not benefiting from employer contributions, it’s still important for self-employed workers to have a pension. Your contributions will benefit from tax relief and be invested. The most important thing is to understand what retirement lifestyle you want and how a pension can help you make it a reality. A financial plan can mean your contributions are in line with your plans.

Death in service or life insurance (calculated replacement cost: £360)

“Death in service” cover is a type of life insurance policy provided by your employer that would pay out a lump sum to your loved ones should you pass away. While not all employers offer a death in service benefit, some do, and it can provide peace of mind and ensure your family is financially secure should the worst happen.

For self-employed workers with loved ones that rely on them financially, it is possible to take out life insurance that would provide the same level of security. You can select the level of cover you want, for example, so that it matches your mortgage. Again, premiums can vary, and your health will have an impact.

The importance of an emergency fund and financial planning

The research also highlights why it’s so important that self-employed workers have an emergency fund. While employees may benefit from things like bereavement leave, self-employed workers would need to take time off unpaid. Having a readily accessible fund means that you can take time off if needed without having to worry about how you’ll pay for essential outgoings.

Ideally, you should have three to six months’ of outgoings in an emergency fund to provide financial stability when you need it most. The money should be accessible so it can be used when the unexpected occurs. Often, a cash account is advisable for an emergency fund for this reason.

A financial plan can help make sure everything is on track. From short-term saving goals so you can take a holiday to long-term retirement planning, a financial plan can help you achieve aspirations and balance competing priorities. Please contact us if you’re self-employed and would like to discuss how a financial plan can help you reach life goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

Do you know who your current pension provider is? If so, do you know why you chose them? Even when you’re making regular pension contributions, these may not be things you think about that often. While, in many cases, your employer simply chooses your pension provider and you stick with them, you may want to consider switching.

Over time, your pension is likely to become one of your largest assets and key to your long-term plans. A regular review, and switching when necessary, can help you get the most out of your savings.

Here are five reasons you may want to switch pension providers:

1. Lower pension charges

You’re likely to pay some charges for your pension, which covers the cost of administering your pension and investing. This may be a flat fee or a percentage of your pension. If you’re not sure what fees you pay, it’s worth taking a look. Different providers will also refer to charges differently: some may have an “annual management fee”, while others will have a “policy fee”.

The fees you pay directly impact the amount that’s left in your pension and, therefore, the amount you can use in your retirement. In some cases, it can make sense to switch to a provider with lower fees. This is often true for smaller pensions, particularly if the provider uses flat fees.

2. Improved investment performance

As pension contributions are invested, their performance is important too. Seeking a pension provider that will deliver a better performance can put you on track for a more comfortable retirement.

There are several questions to ask here. Have you reviewed the different funds offered by your provider? And are you invested in the right one for you? Finally, are you taking a long-term view? Remember: you’re investing over decades so you should take a long-term outlook rather than focusing on short-term movements.

3. Choice from a wider selection of funds

Pension providers will usually have a selection of funds for you to choose from. These will typically reflect different risk profiles, allowing you to control how much risk you take. Some may also offer ESG (environmental, social and governance) or other focused funds. The fund you choose will affect how your pension is invested.

If your current pension provider doesn’t offer a fund that suits you, you may decide to switch. However, most pension providers offer a good selection that is suitable for the majority of pension savers.

4. Greater control over your investments

If you want greater control, you may be considering switching to a SIPP (self-invested personal pension), which allows you to select investments and choose from a greater range of assets.

You have more control, but you also need to take more responsibility for your retirement savings. A SIPP can be useful in some circumstances but it’s not right for everyone. If you’d like to discuss whether a SIPP is the right option for you, please give us a call.

5. Make your pensions easier to manage

How many pensions do you have? If you’ve switched jobs a few times, you can end up with several pensions that you’re no longer paying into. This can mean you’re paying more in charges and make it difficult to manage your retirement savings. Consolidating pensions means your savings are all in one place.

3 things to do before you switch your pension

Before switching pension provider, consider these three things to ensure it’s the right decision for you:

  • Check the benefits of your current scheme: Some pensions come with valuable benefits. This is often the case with defined benefit (DB) pensions, but some defined contribution (DC) pensions will also have benefits. These could include being able to access your pension sooner or providing a pension for your spouse or civil partner. Make sure you check first – you will lose these benefits if you transfer out of a pension.
  • Review exit penalties and entry charges: In some cases, you won’t have to pay additional charges when transferring your pension, but you should always check. There may be fees from the current provider and the one you’d like to switch to.
  • Get advice: The decisions you make about your pension could affect your income and lifestyle throughout retirement. You should take advice before moving forward.

If you’re thinking about switching pension provider, please contact us to discuss your options and retirement goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

It really is never too soon to start investing through a pension. You may not be thinking about the retirement lifestyle that your children or grandchildren will enjoy quite yet, but opening a pension before they even start school can be worthwhile.

If you’re looking for a way to help secure a child’s financial future, a pension can ensure their later life is far more comfortable and provide them with a valuable foundation for later life.

Here are three reasons why investing through a pension on behalf of a child can lead to powerful growth:

1. Tax relief will provide an instant boost

Pensions opened on behalf of a child work in the same way as those for an adult. That means contributions will benefit from tax relief, which provides an instant boost to the money you’re setting aside.

Pension holders that don’t earn an income, including children, can add up to £2,880 a year to a pension. With tax relief, this brings the annual sum up to £3,600. By making the maximum contribution from birth until they’re 18, they’d receive almost £13,000 through tax relief alone.

2. Compound growth is powerful over the long term

When opening a pension for a child, the money is invested for decades. This provides plenty of time to benefit from compound growth. This is where an asset’s earnings are reinvested to generate additional earnings over time. The compounding effect means returns grow exponentially.

To put this into perspective, Morningstar calculates that if you make a one-off contribution of £2,880 (£3,600 with tax relief) when a child is born the pension would be worth £90,000 after 66 years, assuming an average growth of 5% a year.

If you contributed the annual maximum amount for the first 18 years of a child’s life, the value would be more than £1.1 million by the time they reached 66. The power of compound growth means they could still have a comfortable retirement even if they didn’t make contributions during their working life.

3. It provides a foundation for your child or grandchild to build on

Instilling good money habits in children can set them on the path to a financially secure future. By contributing to a pension throughout their childhood, you can help get them into the habit of saving for the long term early. It also means they won’t be starting from scratch when they enter the workforce, which can motivate them to keep adding to a pension.

It’s not just financial benefits offered by a child’s pension

Saving enough to retire on is a huge undertaking and can seem like a daunting challenge. That’s why starting a pension for your child or grandchild can improve their wellbeing and outlook.

More than half (58%) of non-retired people aged between 45 and 60 worry they won’t have enough money to provide an adequate standard of living in retirement, according to an Aviva survey. Even younger generations, who still have several decades to save, have concerns. Two-thirds (66%) of workers aged between 35 and 44 have concerns about retirement finances. Paying into a pension fund early could help alleviate some of these worries.

Having a pension foundation could also mean children or grandchildren have more flexibility later in life. The State Pension Age is rising and will reach 67 by 2028. By the time the children of today reach State Pension Age, it’s likely they’ll be in their 70s. Having a personal pension to fall back on means they may be able to give up work earlier if they want to.

3 questions to ask before setting up a child’s pension

Before you open a pension for your child or grandchild, you should consider the alternatives. A pension isn’t the right option for every family. These three questions can help you understand if a child’s pension is something you should research further:

  1. Do you have an emergency fund? Remember you cannot access funds you place into a pension until the pension holder reaches the minimum pension age, currently 55 (rising to 57 in 2028). Before investing additional funds into a pension, including on behalf of your child or grandchild, you should ensure you’re in a financially stable position.
  2. Have you made use of a Junior ISA (JISA) or saving products for children? There are other saving and investing products aimed at children which can provide more flexibility. Some, for example, will allow you to make withdrawals at any time, which can be useful. Others will become available when the child is 18 and could pay for other milestones, like further education, driving lessons or buying a home. A JISA is a tax-efficient option for investing and saving a nest egg for when your child reaches adulthood.
  3. Are you prepared for the money to be inaccessible until your child reaches retirement age? Keep in mind that any money contributed to a pension will be locked away. You should think carefully about this and ensure it aligns with your priorities and circumstances.

Please contact us if you’re thinking about opening a pension on behalf of your child or grandchild. It can be a useful tool and we’re here to help you see how it fits into your financial plan, as well as offering advice on products, contributions and more.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The cost of funding care and delivering support to the elderly has become a national priority. However, research suggests it’s still not something individuals are thinking about when they make retirement plans.

As average life expectancy has risen, the demand for care has soared and more people are living with complex needs. A report from Frank Knight shows the number of beds in care homes increased by 2,500 in 2020. However, the number is still falling in relative terms – there are now 28.7 care-home beds per 100 people over the age of 85, compared to 33.7 in 2010. By 2030, it’s estimated that there will be 2.1 million people over 85, and that demand will continue to outstrip supply.

While you can’t yet know if you will need some level of care later in life, the growing figures highlight why it’s important to consider the possibility.

And yet less than one in ten (7%) people consider planning or funding social care as a priority when retirement planning, according to a survey from Aegon. Just 1% said it was their single greatest financial priority.

Despite the majority overlooking social care when retiring, health is one of the biggest concerns for retirees. Almost half (48%) said they were worried about declining health. Within this, the need for assistance with basic activities and the need to move into a nursing home were among common retirement worries.

Why aren’t retirees thinking about care?

Investigating care options means confronting the possibility of your health declining over time. This is a difficult thing to do and some retirees may choose to bury their head in the sand.

Another reason for overlooking care when retirement planning is that 38% believe the cost will be covered by the NHS. While the NHS does provide some services to support the elderly, in many cases, retirees will need to fund care either partly or wholly, depending on their financial circumstances.

If you haven’t considered care as part of your retirement plan, here are three reasons to do it now.

1. Focus on enjoying your retirement

The above research indicates that deteriorating health and a need for care are worries for retirees. Taking control of this eventuality by making it part of your financial plan can help you focus on the things you enjoy in retirement.

Knowing that you have a care plan in place, should it be needed, will allow you to relax and feel confident in your future.

2. You will benefit from more choice

There isn’t just one type of care. Having the funds to pay for care yourself means you will have more choice.

If you needed some support, would you prefer a carer who came to your home several times a day, or to move into an assisted living facility? Your needs will affect what your options are but setting out your preferences can help build a plan that suits you. In some cases, you may hope to rely on the support of your family and friends, but it’s important to remember that circumstances can change.

Not only will planning for care give you more control over the type of care you choose, but the firms that deliver it. If you rely on your local authority or the NHS to pay for a care home, for example, it may not be in the location you want or offer the facilities that are important to you.

It’s also worth discussing your wishes with loved ones in case they need to make decisions on your behalf.

3. Safeguard the inheritance you want to leave to loved ones

If you’re required to pay for care, it can significantly deplete your savings and other assets, including your home. If leaving an inheritance for loved ones is a priority, planning for care can help safeguard what you’ll leave behind. If the total value of your assets exceed the below thresholds, you’ll need to pay for your own care.

  • England and Northern Ireland: £23,250
  • Scotland: £28,000
  • Wales: £50,000.

Setting aside a fund to cover care, should it be required, can help you protect other assets you want to leave behind. It’s also important to consider what you’d like to happen to this fund should care not be needed; who would you like to benefit from it? Could it increase your Inheritance Tax liability?

If you’re nearing retirement or are already retired, thinking about care now can give you confidence in the future. Please call us to discuss how you can make planning for care part of your financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate or tax planning.

While the chancellor didn’t announce personal tax rises in this year’s budget, a freeze on allowances could mean your tax bill unexpectedly increases. High earners and those with defined benefit (DB) pensions could now find they exceed the Lifetime Allowance, as it will remain frozen until 2026.

The Lifetime Allowance is the amount you can tax-efficiently save into a pension. It was expected to rise in line with inflation, but the allowance will now remain at £1,073,100 for the next five years.

That sum sounds like a lot, but it can be easier than you think to exceed the threshold. The Lifetime Allowance applies to the total value of your pension, not just the contributions you’ve made. Once you factor in employer contributions, tax relief, and investment returns over several decades, you could end up closer to the threshold than you expect.

If you have a DB pension, you’ll need to take the value of the pension you’ve accrued and multiply this by 20 to work out if you’re nearing the Lifetime Allowance. The freeze is likely to affect you if you’re on track for a pension of more than £53,655 a year.  

While the Lifetime Allowance is remaining the same, the freeze means more people will pay additional tax. According to the government’s policy costing document, the freeze will boost the Treasury coffers by £990 million.

Exceeding the Lifetime Allowance could lead to a 55% tax charge

If you do exceed the Lifetime Allowance, you will pay more tax:

  • Any amount over the Lifetime Allowance that you take as a lump sum is taxed at 55%.
  • Any amount over the Lifetime Allowance that you take as an income, for example, to buy an annuity or access through flexi-access drawdown, is taxed at 25%. This is on top of any Income Tax payable in the usual way.

The additional tax can mean your retirement savings don’t go as far as expected. It’s important you understand whether you’ll exceed the Lifetime Allowance, so your wider financial plan reflects potential tax charges. While it can be tempting to stop pension contributions if you’re nearing the threshold, this doesn’t always make financial sense.

But don’t automatically stop pension contributions if you’re nearing the Lifetime Allowance

A pension can still make financial sense

While no one wants to pay extra tax, continuing to contribute to a pension beyond the Lifetime Allowance can make financial sense. Your contributions are still invested and will grow free from Capital Gains Tax. Depending on your circumstances, this can be useful.

You’ll still benefit from employer contributions

While you’re contributing to a pension, your employer usually must too. These contributions are also invested, hopefully delivering returns. So, despite the additional tax charge you can end up better off overall.

You could be giving up other benefits

Finally, some pensions come with valuable benefits that you would be giving up if you stopped contributing. This may include a pension for your spouse, civil partner, or children if you passed away, providing your loved ones with financial security. Before you decide to stop contributing to a pension you should carefully weigh up the benefits, whether they’re valuable to you and how you’d replace them if needed.

Weighing up the Lifetime Allowance with your retirement in mind

While in most cases halting pension contributions completely isn’t advisable, there are often things you can do to reduce the amount of tax you’ll pay when you retire. These may include:

  • Reducing pension contributions
  • Withdrawing your excess pension as an income, not a lump sum
  • Applying for Lifetime Allowance protection where applicable.

The most important thing is to consider your circumstances and priorities to create a retirement plan that suits you. Please contact us if you have any questions about the Lifetime Allowance freeze and what it means for your pensions. We’ll work with you to put a plan in place to minimise tax liability while remaining on track to secure the retirement you want.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.