Energy rescue package: how does it work?
The Government has announced a wide-ranging and costly energy bills rescue package, called the Energy Price Guarantee, to protect households from the worst of price rises this winter.
Energy bills were set to rise by about 80% in October, having already soared in previous updates to the price cap by energy regulator Ofgem.
Instead, the Government has moved to limit that increase.
How will my bills change?
Energy bills will still likely rise for households, but the worst effects have been dampened by the rescue package.
For a typical household, the annual bill for energy will come in at around £2,500 from 1st October. This is however not a hard limit on energy costs.
The way the cap works is as a limit on the price you pay per kilowatt hour (kWh) of gas and electricity. If you continue to use a lot of kWh to heat and power your home, your bills can still come in higher than the £2,500 ‘cap.’
With the way the cap is structured, there is still an incentive for households to conserve the amount of energy they use as this will still reflect in their monthly bills.
If you’re keen on cutting your usage and therefore bills, it’s really important to submit regular meter readings to your provider and speak to them if you believe your direct debits or other payments are set too high.
The guaranteed level was initially set to last for two years. But thanks to market disruption caused by Government spending plans, the new Chancellor Jeremy Hunt rolled the scheme back to just six months. Hunt has committed to review and update the scheme from April 2023, but it is unclear how the scheme will change at that point.
In terms of how much it will cost the Government, little concrete information is known as it is completely reliant on the market price of energy in the next six months.
Estimates range from £60 billion to around £120 billion, depending on what happens to the price of natural gas. Once the Energy Price Guarantee expires, bills are expected to rise again to around £4,347 per year.
Other help
There is still other help being made available to households through measures previously announced by former Chancellor Rishi Sunak.
This comes in the form of an energy bill discount which will be paid to households from October. This is worth £400 and will be paid monthly over winter automatically to bill payers. There is no need to apply as it will be directly applied and is a universal payment.
The Government is also providing cost-of-living payments to households on means tested benefits, which includes Universal Credit, Pension Credit and Tax Credits. Those households will receive a £650 payment this year, made in two instalments.
Those on disability benefits will also receive a payment of £150, but if you’re eligible for this, it likely already arrived in September.
Older people can also claim the Winter Fuel Payment – which will pay between £250 and £600 depending on your circumstances. Those who receive State Pension or other social security benefits (not including Adult Disability Payment from the Scottish Government, Housing Benefit, Council Tax Reduction, Child Benefit or Universal Credit) will receive the help automatically.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
What does the falling pound mean for my money?
The pound has fallen considerably in recent weeks and months. But what does that mean for your finances?
Perhaps the most well-reported fall was the sudden plunge on 26 September, which was largely a response by financial markets to the ‘mini budget’ from new Chancellor Kwasi Kwarteng.
Financial markets, in a signal of lacking confidence in Kwarteng’s plans, sold the pound to its lowest ever level – worth $1.03 in dollar terms. It has however rallied somewhat now.
However, there is a longer-term trend at play with the weakness of the pound.
In the past 12 months the pound has declined from a value of around $1.35 to its current level ($1.13 at the time of writing) – representing a 16% decline.
This is mainly down to major global macroeconomic trends affecting the value of the US dollar. Around the world as equities, bonds and other assets struggle, investors look increasingly to just holding dollars.
The main reason these investors look to hold dollars is that the US central bank, the Federal Reserve, is seen at the front of hiking interest rates and reducing the amount of dollars flowing around the global economy through ‘quantitative tightening.’
Thanks to this trend, the pound is among nearly all other major currencies in losing value to the dollar.
But while these are complex trends affecting the whole world, there are some specific effects on our own finances in the UK. Here are the major impacts.
Inflation
One of the least easily-noticed, but biggest issues for a weaker pound is that it will cause more inflation – despite the Bank of England hiking rates to quell rising prices.
This is because the UK economy is highly dependent on imports to supply households with the everyday goods they need.
When the pound falls in value against other currencies, especially dollars for which many major global commodities such as oil are priced, it reduces the nation’s purchasing power.
This makes these products more expensive for us to consume. Although in practice it is difficult to immediately notice the effect, in the long term it will keep the overall level of inflation higher than it otherwise would have been.
Travel
Perhaps the opposite of the above effect – a weaker pound means it is more expensive for people to travel abroad.
When visiting other countries, travellers and holidaymakers will find buying anything they might spend on more expensive as their pounds don’t go as far as before.
This will have varying effects depending on where they go. Europe might not be as much as a stretch thanks to the Euro falling, but a trip to DisneyWorld in Florida might quickly become prohibitively expensive for some.
There are some quick and easy ways to mitigate the worst of foreign exchange rates for holidaymakers though. The most important is to avoid exchanging physical currency at Forex shops, or even at places such as the Post Office. These companies routinely offer foreign currency at extremely high markups compared to the basic Forex conversion rate.
The best solution to this is generally to use new digital-only banks such as Monzo, Starling and Revolut, who offer much better exchange rates and fees for spending abroad and cash withdrawals than old-fashioned High Street banks do.
Investments
A weakening pound also affects investments – but the consideration here can be more complex.
Holders of UK companies that earn in the UK might find that their stocks are worth less as a result of the stock being priced in pounds.
But many major UK firms actually derive much of their incomes from abroad. With a weaker pound this is a good thing for those companies as they will be able to import more valuable foreign incomes. It also makes UK goods sold abroad more competitive to buy, boosting that income for those firms.
Buying companies or other assets denominated in dollars will become more expensive. But the relative value of those assets for those already holding will be a bonus as their sterling value appreciates relative to dollar values.
The effect of pound weakness for investments is complex though and there’s no unifying theme, as individual wealth structures will be impacted differently.
If you would like to discuss any of the themes in this article, don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Mini-budget 2022: market and political turmoil cause major Government reversals
Extraordinary events in the UK throughout September and October have seen the Government announce a ‘mini-budget’ – the contents of which have now largely been scrapped.
Prime Minister Liz Truss, and her first Chancellor Kwasi Kwarteng, announced a series of tax-cutting measures on 23 September.
The Chancellor in his statement said the changes, which were far from mini in reality, were designed to kick-start the economy and provide ‘supply side’ reforms to help businesses grow and let households keep more of their money.
Kwarteng’s announcements were far ranging and were described as one of the most dramatic shifts in policy from the Government since the infamous 1972 Budget from then Chancellor Anthony Barber.
But markets, the media and politicians reacted extremely poorly to the measures which were posing potentially hundreds of billions of unfunded changes to Government policy.
Despite political opposition to the measures, what really killed the mini-budget was the reaction by the bond market – which ultimately would have been asked to fund the measures through new Government debt issuance.
Where are we now?
Liz Truss was forced to sack her Chancellor Kwasi Kwarteng on 14 October. This is because the Bank of England had implemented a special program to support the bond market and protect certain pension funds from running out of cash.
Bank of England Governor Andrew Bailey set a deadline for the scheme of 14 October. This forced Liz Truss’s hand and triggered a series of reversals which initially saw the Government ditch plans to scrap the 45p income tax band, then reverse plans to hold corporation tax at 19% instead of a planned rise to 25%.
Once Truss sacked her Chancellor Kwasi Kwarteng, Jeremy Hunt – a former leadership candidate and health secretary – was brought in as the new Chancellor to steady the ship of Government.
On 17 October, Chancellor Hunt announced the effective scrapping of all the measures set out in the mini-budget. The only surviving measures were the reversal of the National Insurance hike and the stamp duty cut – as both those measures had already been enacted (more on those below).
But the planned cut in the basic rate of income tax to 19% has been binned. When he was Chancellor, Rishi Sunak promised this change in 2024, but Hunt, keen to reassure markets and return confidence to the Government’s economic policies, has scrapped the tax cut completely.
As for other measures, the alcohol duty cut will no longer go ahead, IR35 freelance tax reforms will take place instead of being scrapped, and the Energy Price Guarantee will no longer run for two years (more on that here).
The retreat and reversal of policies has left major questions over Liz Truss’s leadership. Jeremy Hunt was compelled to go further than simply cancelling the changes because the Government had caused a major confidence loss in markets that effectively were on the hook to pay for the measures.
This comes against a backdrop of tough and volatile market conditions, monetary policy tightening and ongoing high inflation. Together, this makes the mini-budget’s measures extremely unpalatable to investors, even if these measures were designed to promote growth and help households in the UK.
A couple of measures have survived however, and these are detailed below.
National Insurance and dividends
The 1.25% hike in National Insurance payments has been fully scrapped, and this will take effect from 6 November. According to the Government, the average worker can expect to save £330 in NI payments in 2023/24.
Dividend tax will be affected by the cut to National Insurance, effectively taking the rate back to where it was before it was hiked in the first place.
Dividend tax rates will be reduced to 7.5% for basic rate payers, 32.5% for higher rate payers and 38.1% for additional rate payers. All of this will take effect from 6 April 2023.
Stamp Duty
Kwasi Kwarteng also made significant changes to the way in which stamp duty works.
No one will pay stamp duty on a property worth less than £250,000 while the first-time buyer (FTB) threshold has risen from £300,000 to £425,000. The maximum level of FTB relief will also raise from £500,000 to £625,000.
These changes were made effective immediately from 23 September.
If you would like to discuss any of the themes raised in this article, please don’t hesitate to get in touch.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Working for longer? Key rules to consider
The number of over 65s has reached a record level, according to new data from the Office for National Statistics (ONS).
The number of over 65s now in work stands at 1.468 million in April to June 2022, up 173,000 from the previous quarter (January to March 2022).
As the cost-of-living rises, and markets turn volatile, more older people are returning to work in order to fund their everyday lives.
But there is also a longer-term trend at play – the number of over 65s in work has risen steadily since 2014 as per the ONS figures.
But what are the pitfalls of working past ‘retirement’ age? The truth is that the line between working age and retiring is definitely blurring, but there are still some important aspects to consider if you’ve decided to keep working for longer.
Here are some key considerations with regards to wealth and tax.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance (MPAA) is a key consideration if you choose to work later in life, and have access to your pension (i.e., over the age of 56).
When you contribute to your pension during your working career, you’re allowed to save up to £40,000 a year into your retirement pots, or 100% of your annual income if below this level.
However, once you reach pension freedom age, currently 55, and you access pension funds, the MPAA kicks in.
The MPAA is currently £4,000. This means once you’ve drawn down funds from a pension, you are only allowed to contribute back in a maximum of £4,000. This includes personal, workplace and employer contributions.
If you are around pension freedoms age, continuing to work and don’t necessarily need your pension cash, it can be wise to leave it untouched to prevent the MPAA kicking in. This will allow you to continue accruing valuable employer contributions and tax relief on your pension savings.
If the MPAA has kicked in, it could be more tax efficient to save into an ISA instead. This will give you an annual tax-free savings limit of £24,000 (£4,000 for pension and £20,000 for ISA).
State pension deferral
Once you reach State Pension age you will be entitled to claim the valuable benefit, assuming you have accrued enough National Insurance Contributions (NICs) in your working life.
The age at which you can take State Pension used to be 65 for men and 60 for women. This has however now been equalised between genders and is in the process of rising to 68. You can find when you become eligible by using the Government website.
If you are eligible but have yet to take your pension, or are soon to be eligible – it can be a very good option to defer receipt of the benefit, if you can live without it.
This is because the longer you defer your payments, the higher your future pay outs will be. The State Pension increases by the equivalent of 1% for every nine weeks of deferral. This means for every year you don’t claim, you’ll get around 5.8% more when you do begin to claim.
For instance, if you’re eligible for the full weekly amount of £185.15, deferring it by 12 months will mean an extra £10.70 a week if you begin claiming one year after reaching full entitlement. Over a year, that adds up to an extra £128.40.
These figures are however purely an example – in practice the State Pension is uprated using the triple lock calculation each year so deferral will most likely lead to higher extra payments in future.
No National Insurance
Once you do reach State Pension age, you will no longer be liable to pay National Insurance (NI) contributions.
Any money you earn won’t be liable to NI contributions, which will mean ultimately, you’ll get more money in your pay packet at the end of the month. Pension income, likewise, doesn’t have any NI liabilities. You are however still obliged to pay income tax on any earnings – be they salary or State Pension income.
If you’d like to discuss any of the rules or tax implications for your wealth, don’t hesitate to get in touch to talk about your options.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 20th October 2022.
Should I pay my child’s university fees?
No-one wants to see their child struggle financially but how much should parents be helping out with university fees, or should they rely on student loans?
Going to university isn’t cheap for a young person, even if they live on baked beans and pasta.
The cost of studying at university is estimated to be around £57,000 for a three-year degree, according to SaveTheStudent.
That is around £19,000 per year, so your loved one could still be in touch for more than just help with their washing.
The costs
Tuition fees alone can cost up to £9,250 in England, Wales and Northern Ireland or £27,750 for a three-year degree.
There are no tuition fees in Scotland if the student has been living in the country for three years.
Additionally, a student will also need to pay for materials such as books as well as their own food, energy and accommodation.
SaveTheStudent’s National Money Survey estimates living costs of around £9,720 or £29,160 over three years.
Adding that to three years of tuition fees takes the total cost to £56,910 – more than double the average salary in the UK.
But there is help available.
All students can apply for a tuition fee loan to cover the annual university bill.
UK nationals who are studying for the first time can also usually apply for a maintenance loan to help cover living costs, which varies depending on the university and your household income.
But leaving university with large debts may make it harder for your child to get on the property ladder or access other credit as it will form part of the affordability criteria in applications.
It is easy to see why parents may be tempted to help their child with these costs instead.
Paying your child’s university fees may help give them a more financially stable start in life as it could be easier to access an affordable mortgage rate or other credit if they don’t have a large level of student loan debt.
Here is what to consider.
Financial independence
University is likely to be the first time your child lives alone and learns the importance of running a household and budgeting.
This could be a good chance for them to learn how to setup and pay bills or to put money aside for essentials such as the food shop and their studies.
There a risk of spoiling them if you pay for everything.
Would it be better for your child, and your wallet, if they got a job to cover their costs or if you just made a small contribution each month to get them started?
Will you have to pay anything?
University costs may look daunting but the repayment terms on a student loan are different to traditional finance and it may be that the debt never actually has to be repaid.
Student loan repayments only become due in the April after graduation and only once the borrower reaches a certain annual earnings threshold.
The threshold depends on when a student started their course, but it is currently £27,295 for an English or Welsh student who started a course anywhere in the UK on or after 1 September 2012.
It functions, in effect, as a 9% income tax levy above this threshold. Any student debts are cancelled 25 years after the first April the student was due to repay.
While this dampens their earnings potential it won’t affect aspects of their finances such as credit rating. Mortgage providers will take into account how much they’re paying off each month as a part of income considerations but won’t consider the size of the ‘debt’.
Some employees may not earn above the minimum threshold and may not ever fully repay the loan, so paying for them may just be wasting your money.
Can you afford to wait?
Rather than paying upfront, you could wait until the end of your child’s degree. If they look likely to earn above the repayment threshold, you could then step in and help.
This way, your child will also have hopefully learned how to manage their money during university.
Alternatively, your child may end up with a highly paid role that makes it easy for them to pay off the loan quickly.
Can you afford to help?
Don’t give away money you may need for your own bills, retirement or care needs.
That is especially important at the moment with inflation, or the cost of living, expected to hit 13% over the next few months.
This could mean higher energy and food bills, while mortgage rates could get more expensive as interest rates rise to curb inflation.
Alternatively, you could put money aside for another use such as to help your child with a mortgage deposit once they graduate.
It may be worth speaking with a financial adviser to see how paying your child’s university fees fits in with your own financial plan and the best way of using the money.
Pension opt outs are rising – but foregoing a pension could cost you thousands
Increasing numbers of employees are opting out of their workplace pensions as the cost-of-living crisis bites but experts warn this could leave future retirees out of pocket.
Inflation has already hit a 40-year high of 10.1% and the Bank of England predicts it could go as high as 13%, with some forecasters even warning the figure may hit 18% or higher.
That means increased bills for everything from energy to food, travel, clothes and holidays.
The Bank of England has already begun increasing the cost of borrowing – the base rate – in an attempt to bring inflation down.
That will mean higher interest on loans and mortgages and higher energy costs which could also add to financial pressure on households.
It is no surprise that households are looking to cut back on their expenses in a bid to preserve at least some of their cash.
Many are looking at their pension contributions and wondering if the money can be used immediately rather than for their retirement to help get over rising cost pressures.
Analysis by online pension provider Penfold has found that the number of savers opting out of company pension schemes increased 29% from March to July this year, just as the cost-of-living crunch began to make its effects felt.
While this may save you money and release some spare cash in the short term, the impact could be felt much longer-term and mean a poorer retirement.
Pete Hykin, co-founder at Penfold, comments: “Everyone understands that the pressures facing today’s savers are considerable”.
“Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so”.
“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.”
A 20-year-old stopping a contribution of £200 per month would miss out on £28,000 in their pension pot from stock market performance if this was carried on for a three-year period.
That means less money for your golden years at a time when you may not be working and may not have other sources of income beyond a state pension.
You would end up having to invest more once you restarted contributions if you wanted to catch up.
Although it is especially tough at the moment, it’s essential to maintain contributions and make cost savings elsewhere if possible. Ultimately cutting off your long-term wealth growth to beat a short-term problem is going to harm your finances either way.
Inheritance disputes are soaring – here’s how to avoid painful family quarrels
Disputes around how a person’s estate should be distributed are soaring official figures show, attributed to poorly drafted, or the lack of, wills to set out their wishes.
Planning for what happens after you die may seem morbid, but it could help prevent extra stress and upset – as well as a large bill – for those you leave behind.
Research by law firm Nockolds shows there were 9,926 challenges to how inherited estates are managed and distributed – known as probate – in England and Wales in 2021.
The figure was up 37% compared with 2019, according to a freedom of information request (FOI) made by Nockolds and reported by the Financial Times.
Experts warn that an increasingly litigious society and rising house prices could be driving more people to block probate and try to take a share of or control a deceased relative’s estate.
This hasn’t been helped by the rise of online DIY services that let people prepare their own will online by answering a series of questions without consulting a lawyer.
Without clear instructions, family members could easily disagree about issues such as how you want to be buried and what happens to your hard-earned assets such as your savings and your home once you die.
Here is what to consider.
Make your wishes clear
The best way to avoid family disputes is by writing a will.
This is a legal document that sets out who should manage your assets and liabilities – known as your estate – and who should receive any of your wealth or possessions.
Research by Royal London shows 56% of adults in the UK don’t have a valid will, rising to 79% for 18–34-year-olds.
Without a valid will, your estate falls under the rules of intestacy.
This means that regardless of who you may have chosen, the law dictates the order in which people inherit your estate.
Under the intestacy rules, a spouse or civil partner is automatically recognised as the person who should benefit the most, followed by children.
This may create an issue if you have been living with someone but weren’t married or in a civil partnership.
They may not have any rights to your estate, even if you wanted to leave them your home or other possessions as there would be no document setting this out.
Avoid disputes
Just writing a will online may not be enough, especially for more complex issues.
An automated will writing service may not raise issues to consider such as if you are divorced, remarried or have children from different relationships, all of which could lead to different claims on your estate.
If there are disagreements or parts of the document are unclear, your will could be deemed invalid and moved to the intestacy rules.
Alternatively, your loved ones could end up in court to contest it, which can mean expensive legal fees. There are ways to avoid this before you pass away.
Some DIY services will let you pay extra for a lawyer to check your will, or you could consult a solicitor directly to ensure the document reflects your wishes and situation.
It is also important to review your will if your situation changes.
Royal London research shows six in 10 people haven’t reviewed their will in over a year, with 29% leaving it more than five years.
Plenty could have happened in that period such as a new child or property.
Inheritance tax
Your will is also an important inheritance planning tool.
Currently inheritance tax of 40% is paid on any assets worth more than a nil-rate band threshold of £325,000, plus £175,000 for your main residential property.
There is no inheritance tax between spouses though, so you can reduce the liability of your estate by passing on assets to your husband, wife or civil partner through a will.
You can also leave money to charity through your will and if you donate at least 10% of your estate then the inheritance tax rate drops to 36%.
None of this would be possible without a clear and concise will, saving your loved ones tax, legal fees and heartache.
Rail fares set to rise by less than inflation
Commuters braced for rising energy bills and higher borrowing costs may find their rail fare increases aren’t as bad as expected next January.
Despite train companies being private companies, the Government has the power to limit increases on some rail fares to ensure they do not exceed the cost of living and remain affordable.
Around 45% of all rail fares are subject to the Government’s cap including season tickets on most commuter journeys and some off-peak return tickets.
The increases usually take place each January and are linked to the retail price index (RPI) from the previous July.
Other services that link bills to RPI include broadband and mobile phone networks, which argue that increasing customer bills help maintain services and infrastructure.
This is a contentious enough issue as its calculations no longer meet international standards and it tends to be higher than the more widely recognised consumer price index (CPI).
Another issue is the actual RPI rate as a high measure can mean rail tickets are too expensive for travellers.
If train fares were to increase by July’s RPI rate next January, they could go up by 12.3%, the largest ever increase amid the ongoing cost-of-living crisis.
It wold mean, for example, that commuters travelling between Reading and London on any route would have to pay an extra £620 for the new season ticket cost of £5,664.
But the Government has instead said fares will not go up by so much and will be frozen until at least March 2023.
A Department for Transport spokesperson comments: “The Government is taking decisive action to reduce the impact inflation will have on rail fares during the cost-of-living crisis and will not be increasing fares as much as the July RPI figure.
“We are also again delaying the increase to March 2023, temporarily freezing fares for passengers to travel at a lower price for the entirety of January and February as we continue to take steps to help struggling households.”
Similar action was taken during the pandemic to give commuters more time to purchase tickets at lower prices.
The Government hasn’t confirmed how much the new cap will rise by, but this is usually confirmed each December.
Source:
https://commonslibrary.parliament.uk/how-much-could-rail-fares-increase-by-in-2023-and-why/
Thinking outside the box on adviser recruitment
This article first appeared in Professional Adviser.
‘A buyer’s market’
Looking at the ‘buyer’s market’ of adviser recruitment, while salary is important, making sure people enjoy coming to work is vital…
In spite of weakening economic growth, the job market is busy. The latest labour market statistics show the number of vacancies across the UK to be at just under 1.27m, according to the Office for National Statistics, with full-time employment hitting repeated highs throughout 2022.
The financial advice industry is no exception, and it’s giving advice firms a real headache when it comes to recruiting new advisers.
The Retail Distribution Review saw many IFAs leave the industry, and this raised the bar for those looking to enter into the profession. This has been a welcome change to the industry but has also limited the number of new recruits.
More recently, adviser businesses have started to digitise and automate administrative and back office processes. Not everyone can adapt to this new environment and advisers can be stubbornly wedded to old working practices.
The pandemic and its aftermath have also created difficulties for advisers who need to recruit, particularly those looking for more senior people. Advisers report problems at every stage of the process – fewer people applying for the job in the first place, the quality of candidates is weaker, demands for salary and working conditions are higher. When firms finally think they’ve got a winner, candidates often pull out at the last minute because they get a better offer elsewhere.
Certainly, it is a buyer’s market. Salary demands are up significantly in many cases, while potential recruits often want several days a week working from home now that the geographical boundaries have largely disappeared, so advice firms can be competing across the country for talent.
So, what’s the solution?
Holding on to the staff you’ve got now should be the first priority. Aside from anything else, this can save business owners a lot of money with the average recruitment firm charging 20-30% of a candidate’s annual salary for a placement.
While most IFAs will check the market rate to ensure salaries are competitive when recruiting advisers, this isn’t always the case when it comes to annual reviews for existing staff. How regularly – and at what level – employers adjust pay can have a significant impact on someone deciding whether they want to stay and support a company long-term. This has become even more prevalent in the current high inflation environment.
And while salaries are important, making sure people enjoy coming to work is also vital. Enlightened advice firms have found ways to build in flexibility for their advisers without compromising their service to clients – reducing working hours, for example, working from home where possible, or even moving to a four-day working week.
This can also be a tool for recruitment, which helps to build a firm’s reputation in the marketplace. Being known as a company that takes care of its staff and having existing employees happy to act as advocates for the business, can only make attracting talent easier.
In addition, the government’s apprentice scheme can allow firms to forge links with training groups in their area and find new recruits. Building links with local universities and schools can encourage people at the start of their career to consider financial advice. These are slow-burn options, but training from scratch may prove less labour-intensive than trying to recruit experienced hires in today’s febrile environment.
Accepting that there’s no magic bullet
We believe it’s also important to accept the environment in which we are operating. Good candidates will have a range of options, so it’s important that business owners are clear about what makes their business unique.
Is it the warmth of their culture? The breadth of the client base? The work on offer? Scrimping on salaries and benefits will almost certainly get you off on the wrong foot too.
It is worth asking whether any of the same results could be achieved through technology.
Financial advice businesses that are heavily reliant on paper-based systems, will look clunky and inefficient to anyone under 40, so investing in technology can be both an alternative to recruiting new staff and a means to attract new people to your business.
There is no magic bullet. Everyone is finding it tough going. Recruitment takes real commitment in today’s market – starting early and exploring a range of options is a necessity. Advice firms need to get creative.
Tax cut time? Here’s what Sunak and Truss are offering
The Conservative Party have decided to elect a new leader after Boris Johnson’s tenure as Prime Minister has come to an end.
But with the state of the economy in flux, the candidates need to be more careful than ever to emphasise their financial offerings to voters.
Here’s what each contender has said they would implement, and what that could mean for your money.
Rishi Sunak
The now former Chancellor, Rishi Sunak, was catapulted into prominence over his handling of the economy during the coronavirus pandemic.
From Eat Out to Help Out to the furlough scheme, Sunak was credited with staving off the worst effects of the lockdowns and fall out from the pandemic.
But the MP for Richmond in North Yorkshire has been widely criticised for his involvement as Chancellor in the subsequent economic issues triggered by the pandemic such as widespread inflation, soaring energy bills and raising taxes to pay for prior spending.
Sunak has pledged to cut the basic rate of income tax from 20% to 16%, but only by the end of the next Parliament – still seven years away. This would represent the biggest cut to personal taxes in around 30 years, were it to come to pass, and would save someone on an average salary of £32,000 around £777 a year.
However, if this level is matched in pensions tax relief, it would be a significant cut to the amount of tax relief anyone saving into a pension would get.
He has also committed to cutting that rate to 19% in 2024, but this was already announced before the leadership contest began.
Sunak has also promised to end VAT on energy bills should average prices rise above £3,000 per year, but this was only offered after initially declining to offer the cut. This would save the average household around £160 a year.
The former Chancellor has also promised to cut business rates in 2023. Beyond this however, he has been relatively quiet on financial policies, other than to criticise his opponent’s stances.
Liz Truss
The current frontrunner candidate Liz Truss has been vocal on her desire for the Bank of England base rate to move to a higher level. If she is made Prime Minister, she would couple this with significant tax cuts.
Tax cuts are the centrepiece of Truss’s offering and she has said she intends to “start cutting taxes from day one.” Her proposals add up to some £30 billion of cuts to taxes.
This includes scrapping the 1.25% National Insurance hike, and the 6% corporation tax hike which is due to be implemented next year.
The current Foreign Secretary has also pledged to scrap green levies on energy bills for two years to help households struggling to pay as prices soar.
Truss has also said she would include inheritance tax in a wider review of the tax system – looking at whether it is fit for purpose.
Truss says she intends to pay for the tax cuts by renegotiating the way the Covid-accrued debt is paid, making it a longer-term debt more similar to the way the Government paid back its debts after the Second World War.
While the contest is ongoing and more pledges are no doubt coming through the pipeline, readers must remember that these policy announcements are largely designed to appeal to the Conservative Party membership.
With the Bank of England predicting 13% inflation by the end of the year, whoever takes over at No.10 will no doubt have to adapt to the situation as it develops.
Energy bills set to worsen this winter – top tips on how to save
Energy bills are set to soar again this winter as the energy crisis in Europe worsens.
Prices have soared in the past year as demand surges – this has been greatly exacerbated by the conflict in Ukraine and ensuing tensions with Russia.
As a result, the current price cap on energy bills, as set by energy regulator Ofgem, is £1,971 having increased from £1,277 on 1 April.
But as announced on 26 August, this cap will now rise to £3,546 on 1 October.
In practice these figures are quoted for the ‘average’ home usage, so you could end up paying more (or less) depending on what you actually use in your home.
Although tricky, this means it is still possible to save money on your energy bills. There are a few ways of doing this.
Make changes to your home
The first, and more costly way to make long-term changes to your energy consumption is by changing the way your home uses, conserves, or even produces energy.
The Government has launched a tool that you can use to get an idea of what potential upgrades you can make to your home, the costs and potential savings.
Ideas include installation of cavity, roof and floor insulation. Also, installing a heat pump to replace a gas boiler, or solar panels to produce your own heating or energy.
It also includes ideas such as upgrading your windows to double glazing, installing smart thermostats to regulate your heating more efficiently or buying more energy-efficient home appliances.
While these are all good ways to make your home more energy efficient, the issue with many is that they’re either not practical depending on your property or require personal investment that won’t realise the financial benefit for some time.
Taking the aforementioned Government tool can give you an idea of the saving and costs of each idea.
Make changes to your behaviour
This is where behavioural changes come in and provide the possibility to save money immediately on your energy bills.
All the figures below are quoted by the Energy Saving Trust based on current energy price cap levels and average household by size and usage levels – so this is liable to change come October. But if anything, the cost savings could get better. Here are those tips:
- Ditch one bath a week for a shower – £12
- Reduce dishwasher usage by filling it completely – £14
- Turning off all lights in rooms you’re not using – £20
- Washing your clothes at 30 degrees and reducing your number of washes with larger loads (i.e., don’t put one jumper in and put a wash on) – £28
- Insulate your hot water cylinder if you have one – £35
- Fill the kettle to the level you need, not the top – £36
- Installing draft excluders or cushions on doors to prevent heat loss to rooms you’re not using frequently – £45
- Turn off the electronics in your house instead of leaving things like TVs on standby when you’re not using them – £55
- Dry clothes on a rack or in the garden, avoid the tumble dryer – £60
- Take shorter showers. The Energy Saving Trust says under four minutes is ideal – £70
While all these behavioural tweaks save fairly small amounts individually, taken together you’re looking at around £375 a year less on your bills. Were the price cap to rise to £3,400, this would be a saving of around 11% – no small amount.
While in the context of long-term wealth growth this might seem like small fry, the truth is cutting day-to-day living costs is one of the most effective ways to save more for the long term.
Amazon Prime hikes prices – time to review your bills
Amazon has announced it is hiking the cost of its Prime streaming and one-day delivery services.
With the cost-of-living rising, it’s time to review your non-essential bills. It happens to even the most prudent of us, especially thanks to the pandemic.
Stuck at home, we signed up for a range of new services including streaming, food delivery and other non-essential products.
But as we leave the pandemic behind and life returns to a ‘new’ normal, the cost of living is soaring, with inflation currently 10.1% on the consumer prices index (CPI) measure.
Unfortunately, no household is immune, and even longstanding services such as Amazon Prime – which has not increased prices in eight years – are not saved from hikes.
Amazon Prime is increasing its cost from £7.99 to £8.99 per month, or if you pay annually, £75 to £95. While this is not a massive increase individually, replicated across a range of services you could find your bills going up hundreds each year (not including energy, which is facing a major crisis and we handle separately in this blog.
How do I save on my bills?
The first thing to do if you feel you’re spending too much on your bills is to do a full audit of how much you’re paying for each item – looking at the monthly and annual costs.
In many cases, for products such as insurance, or even Amazon Prime, paying annually will save you money, so if you’ve got the financial resources to do that, it can be a good idea.
Once you’ve got a sense of what is going out, look at when your contracts expire. For phone, broadband and mobile bills you should never be paying more than the best deal on the market, if you’re out of contract.
Providers should alert you these days when your contract is expiring but be vigilant and shop around for better deals using price comparison sites. Mobile phones in particular can leave a costly bill in place that is unnecessary. While some providers such as O2 will lower your bill once you’ve paid for your handset, others will let it run at the same rate, which you’re not compelled to pay.
Next it’s essential to ask yourself – do I really need this? A common problem where costs proliferate in this area is streaming services. With such a wide variety available it’s tempting to have them all, but this could set you back hundreds a year. Ask yourself if you really need them all, or maybe cut back to your favourite. There are even free options available such as All4, which provides hundreds of TV boxsets totally for free.
Likewise, this is an issue when it comes to services such as Sky TV. The contracts tend to be very expensive, with price increases baked into the contract. There are cheaper alternatives such as streaming via NOWTV – which is just the digital equivalent of the same service. Separating out your telecoms bundle into separate broadband and TV services could lead to significant savings.
When it comes to other fixed cost bills such as water, council tax and TV licence, unfortunately these might not be possible to avoid or minimise. But there are a few tweaks you can make.
If you don’t watch live TV, or use BBC catch up services such as iPlayer, you don’t have to pay a TV Licence, for instance. Anyone living alone is eligible for a 25% council tax discount, while ensuring your property is in the right band can also save considerable sums. Altering your council tax band can be risky however as your local council might decide you should be in a higher band.
It is however worth researching whether your property is in the right banding. In the early 90s councils conducted so-called ‘second gear valuations’ where they would drive through neighbourhoods making valuations on the fly, leading to some very distorted bandings. It is worth looking into, Money Saving Expert has a more detailed guide if you wish to learn more.
Inheritance tax interest costs soaring for bereaved families
A little-known process for paying inheritance tax is sending payments soaring for bereaved families thanks to the Bank of England.
The issue arises where a family has an inheritance tax (IHT) liability to pay after losing a loved one.
The Government, to give families the ability to pay the liability without being forced to sell the assets such as home, offers payment by instalment.
But there is a little-known caveat to this which is sending payments soaring for many.
Interest rate hikes from the Bank of England are hiking these IHT payments. Families are obliged to pay an interest rate of the Bank of England base rate plus 2.5%.
This means the rate of interest on the instalments is currently 4.25% – higher than some of the best loan rates on the market.
How do IHT instalments work?
When inheriting assets from a loved one, the Government allows bereaved families to pay the IHT due on the value of their home over 10 years in annual instalments.
If you sell the house, you have to pay the liability in full straight away. The first instalment is due within six months at the end of the month in which the death occurs.
For shares and other securities, families can pay the IHT liability in instalments if the person who has passed away controlled more than 50% of the company.
How to minimise IHT costs
HMRC has seen a year-on-year increase in the number of estates paying IHT. This is because while asset prices have grown steadily over time, the Government has frozen the thresholds for paying the tax.
This means families become subject to liabilities, purely because the value of their assets are increasing to a point over the threshold.
Fortunately, there are good wealth planning solutions to mitigate the costs of IHT with regards to property.
A single person has no IHT liabilities on the first £325,000 of their assets. With the addition of the residence nil rate band this rises to £500,000 if the asset in question is your main home. The extra £175,000 is only available if the house (or its value) is being left to a direct descendant, (Children, Grandchildren, Adopted Children). So, if leaving to trust or to a sibling or nephew for example, it isn’t available. For a married couple this allowance effectively doubles to £1 million-worth of property if it is your main home.
However, once an estate reaches £2 million in value, the home allowance is removed by £1 for every £2 above the threshold. This effectively removes the allowance once an estate is worth over £2.3 million.
There are other strategies to help minimise the bill, including the way you structure assets, where you invest your wealth, and how you gift it away.
If you would like to discuss the themes in this article or would like more information on anything relating to inheritance tax, don’t hesitate to get in touch.
Create the club that everyone wants to join
This article first appeared in Professional Adviser.
The softer side of future-proofing
Advisers cannot rest on their laurels if they want their practice to remain sustainable over the long term. Future-proofing is essential…
IFAs have had immense changes to contend with in recent years. From the Covid-19 pandemic to the emergence of robo-advice, and a growing need to engage with the younger generations, advisers cannot rest on their laurels if they want their practice to remain sustainable over the long term.
I’m often asked what advisers should be doing to future-proof their business. In today’s market, this is no longer just about devising a succession plan, but rather focusing on those ‘softer’ elements that will foster a community-like atmosphere that clients genuinely want to be part of – and will encourage them to recommend relatives and friends over the years to come.
Here are three examples.
1. Prioritise personal touches
Most advice businesses are now using tech to drive operational efficiency, but this shouldn’t be at the expense of personal touches that show clients how much you value their custom.
There’s nothing more personal than sitting down with someone to discuss the ins and outs of their finances, so it can be a bit jarring for clients if the only contact they have with their adviser outside of their annual review is limited to admin-related emails. Things like handwritten birthday cards might seem a bit old-school, but even small gestures like this can be incredibly powerful and don’t go unnoticed.
I also know of firms that send out a small gift or thank you card on the anniversary of someone becoming a client. This is another great way to show clients your gratitude, but also keeps you front of mind if they’re speaking to friends and family that could benefit from your services.
2. Factor in other areas of their lives
It’s funny to think that financial advisers are often entrusted with more information about the intricacies of clients’ lives than their doctor or spouse. This is an incredibly privileged position to be in and I’m a big believer in using this influence to have a positive impact outside of ‘traditional’ financial advice.
For example, a big strength of Vitality is that rather than simply selling the benefits of health insurance, they are known for creating incentives for customers to lead healthier lifestyles.
I’m not suggesting we start telling clients how to live their lives, but we could definitely think more laterally in terms of the ‘value-add’ features we offer. It would be easy, for instance, for IFAs to run financial education workshops for clients with children, or budgeting masterclasses for those with teenagers about to head off to university.
At the other end of the scale, perhaps some clients have older parents and would appreciate guidance on how to approach wills and inheritance tax planning, or the tricky conversations around going into long-term care.
3. Create a sense of community among clients
Face-to-face client events might have fallen out of favour during the pandemic, but can create a valuable sense of community among clients that encourages them to stay with your business for the long haul. Particularly for those who don’t have many friends or relatives living nearby, touchpoints like this with other local people can be incredibly meaningful.
Group lunches or dinners can be a great start, but another idea could be to invite a client to co-host a gathering with you once a quarter. Given the average adviser has 150 clients, I’m sure at least a handful would have a quirky backstory or hobby they’d be happy to share with others. Are one of your clients into pottery or rug hooking for example? Perhaps they could put on a masterclass.
The idea isn’t to spend lots of money on a fancy restaurant, but rather do something a bit different that will engage clients, show them that you pay attention to who they are as individuals, which will set yourself apart from other firms.
By finding ways to personalise relationships with clients and bring them together, advisers can create a club-like atmosphere that genuinely enriches clients’ lives, while working towards building a more sustainable business that people want to stay and support. That’s something everyone can get behind.
State Pension set to rise by up to 11% - here’s what you need to know
The State Pension is set to rise by around 11% next year, as the Government has committed to the much-debated triple lock.
The State Pension triple lock guarantees that the benefit for retirees will rise by inflation, wage growth or 2.5% – whichever is higher at the time of the update. This is set to be decided by the data in September, with the rise implemented from the new tax year, 6 April 2023. This will affect around six million retirees in receipt of the benefit.
11% rise?
On the basis of those three inputs, the State Pension is likely to rise by up to 11%. This is not guaranteed, but what is forecasted by the latest inflation expectations from the Bank of England.
This has been known for some time, but the Government cancelled the triple lock last year. It did this because wage data at the time in 2021 was abnormally high.
But unlike inflation, which is high for particular economic reasons, the wage data was unusually high thanks to problems with the Office for National Statistics (ONS) information collection during the pandemic.
That wage data has now normalised, but inflation is at record levels. Despite this, the Government has now reaffirmed its commitment to the rule, leaving State Pension recipients in line for a bumper benefit increase.
The Government has come in for criticism over its decision to uplift the State Pension in line with inflation, particularly because workers aren’t receiving such generous pay increases, per ONS data, nor is it hiking other benefits such as Universal Credit by equivalent amounts.
Cash terms
Those who receive the full new State Pension currently receive £185.15 per week. If you defer taking the State Pension, this weekly payment can be larger once you do start claiming.
Those who reached State Pension age before 6 April 2016 will get a different amount which depends on the basic State Pension rules.
In cash terms for those who are eligible for the full new State Pension, an 11% uplift would be around £20.60 per week extra, or an extra £1,071.20 per year. This would take the State Pension payment over £10,000 for the first time ever to around £10,699 per year.
While this is a relatively small amount compared to other areas of wealth and income, it does form an often-essential part of many retirees income, especially in later years of life.
For those with ample income from wealth, or even those who are happy to continue working later in life, deferring the State Pension can be a really effective way to build up extra earnings for later in life.
Despite popular imagination, the State Pension isn’t accessed from a pot of money someone works towards over their adult life. Contributions are measured through National Insurance payments by qualifying year. The more of these you build, the more State Pension you’ll accrue for retirement, until you reach the ‘full’ amount.
If you spend any time out of the workforce, for reasons such as caring for a relative, or perhaps if you care for your children full time, it’s really important to claim National Insurance Credits (NICs) to ensure when you get to retirement age you have the full quantity you need.
If you’d like to discuss this, or anything else regarding your wealth journey, don’t hesitate to get in touch.
Nationwide now offering 5% interest– is cash back?
Nationwide has launched a new offer of 5% interest on current account cash.
The building society has ratcheted up its interest rate on the FlexDirect current account to entice more customers through its doors.
The increase takes interest on the current account from 2% to 5%. However, the rate is only available for up to £1,500 for 12 months. At the end of the 12 months the rate falls to 0.25% AER.
You’ll also have to pay in at least £1,000 a month. Anyone who doesn’t already have a current account with Nationwide can switch using the Current Account Switching Service (CASS) and will receive a £100 bonus for doing so.
This combined with the interest will earn you £200 over 12 months with the account.
Best place for cash?
The Nationwide account will only take care of a small amount of money for you and isn’t practical for anything like larger savings amounts.
That being said, with the Bank of England hiking interest rates, cash is becoming more attractive.
The top rate on an easy access cash ISA is with Marcus by Goldman Sachs offering 1.3%. This is however still lower than the 1.5% rate that Marcus offered when it first launched in 2018.
For a one-year fixed cash ISA you can get 1.6% from Aldermore, two years 2.45% from Charter Savings Bank, or for five years 2.6% from Hampshire Trust Bank.
These rates are moving up regularly with the base rate rising but are still well behind the current level of inflation, which stands at 9.1% on the Consumer Prices Index (CPI) measure from the Office for National Statistics (ONS).
Is cash king yet?
With investment markets struggling this year it may be tempting to assign more wealth to cash, but ultimately this is still dooming money to devaluation, with such a big discrepancy between rates on offer and inflation levels.
The reality is that investments are still the best long-term method for growing wealth.
Cash is useful for an emergency fund. Holding some cash is also useful if you rely on wealth for your income, as having a pot of cash to draw upon in the short term is a good way of preventing the crystallisation of losses when markets are down.
But beyond this, cash really isn’t yet king. In fact, interest rate rises have a long way to run before cash savings become a viable method of storing long-term wealth again.
Note all rates quoted correct at the time of writing but subject to change.
RPI inflation change could cost pension schemes “billions”
Changes to the way that inflation is officially calculated could cost some pension holders “billions”, a challenge in the High Court has warned.
The challenge comes from representatives of the pension schemes of BT, Marks & Spencer and Ford UK and is attempting to block efforts by the Government to alter the way the Retail Prices Index (RPI) measure of inflation works.
What is RPI?
The Retail Prices Index – or RPI – is one of the oldest existing measures of inflation used by the UK Statistics Authority (UKSA) and Office for National Statistics (ONS) to calculate price changes in the economy.
It is however widely seen as an inferior measure, having since been superseded firstly by the Consumer Prices Index (CPI) and now Consumer Prices Index including Housing costs (CPIH).
CPI is often the most quoted measure in the media when we see news stories about rising inflation and such. But CPIH is generally perceived by statisticians as the most accurate measure of prices and the impact on households as it includes housing costs which form a large part of many people’s budgets.
Despite this, RPI is still used by many organisations to calculate price changes. This includes everything from student loan interest payments to rail fares, mobile phone, and broadband contract prices.
Why is the Government changing RPI?
RPI is widely seen as an inaccurate measure, often overestimating the true level of price inflation in the economy.
The impact of current high inflation levels is being exacerbated by RPI inaccuracy. For instance, in June the Government announced it would be capping student loan interest rate rises, as the RPI measure was leaving students facing a 12% rate on their debts. Instead, it is capping the rate at 7.3% to protect graduate incomes from greater financial pressure.
Instead of simply abolishing it, which would be a complicated process with many organisations reliant on the index, the Government intends to change the way it is calculated to align it with CPIH.
This would have the effect of softening the impact of the measure while not getting rid of it entirely. The change is set to take effect by February 2030.
High Court challenge
Now however, this decision is being challenged through the courts by the above-mentioned pension schemes.
Those schemes argue that changing RPI to match CPIH will costs the schemes, and their members, billions in lower returns.
These schemes see their values uprated by the rate of RPI each year and could wipe out valuable rises for members. For the BT scheme, for instance, some 82,000 members will see around £2.8 billion in value wiped out by the change, costing each member around £34,000.
The case also argues that the holders of £90 billion-worth of Government RPI-linked gilts will lose out in rises as a result. Pension schemes would be affected as these RPI-linked gilts form a large proportion of their holdings. The Government says it doesn’t intend to offer any compensation to such gilt holders.
Overall, the case argues, RPI-linked pension holders will see 4-9% of their pension values wiped out by the change.
How could it affect me?
While it is uncommon for most pension schemes to have RPI-linked increases, it is still possible and worth checking. It is also worth ensuring that portfolio holdings aren’t overly exposed to RPI-linked assets such as gilts, although the readjustment in value for these will have largely already taken place.
If you’re unsure of whether your pension, or any other assets, might be affected by the changes, don’t hesitate to get in touch with us to discuss.
Annuity rates hit eight-year high - are they worth considering again?
Annuity rates have reached their highest level in eight years. But is it time to consider this former staple of retirement income again?
Inflation is reaching multi-decade highs at the moment, and looks set to stay higher for longer. The upward spike in price rises caught many central banks, including the Bank of England, off guard.
As a result, the bank is hiking its core interest rate to combat those price rises. The organisation is mandated by the Government to keep inflation levels at around 2% – and it is currently nowhere near achieving this, with inflation measured by the Consumer Prices Index (CPI) at around 9.1% according to the Office for National Statistics (ONS).
For this reason, the Bank of England is intent on hiking rates, which currently stand at 1.25% – the highest level since 2009. This is where the rise in annuity rates comes in.
What are annuities?
Annuities are a form of retirement income product. Before 2015 when pension freedoms were introduced, they were a much more common product to opt for at retirement than today.
But a decade of low rates, and changes in the rules for accessing pension cash effectively killed the market.
When you purchase an annuity, you exchange cash in your pension for a product that pays you a guaranteed income, generally for the rest of your life. You can get different types of annuities – including level annuities which pay the same amount every year, escalating annuities which rise at a fixed rate each year or inflation-linked annuities which rise (or fall) with inflation.
The length of an annuity also varies, with short, fixed term or lifetime annuities. Impaired annuities also exist, which pay out at a higher level if you have any pre-existing conditions such as obesity or diabetes, or if you are a smoker. Protection can also be built into an annuity in the form of spouse’s income, guarantee payment period or value protection. Each of these options will affect the rate of annuity you can achieve.
Depending on the product you pick, you exchange the cash in your pension for a regular income.
Why are annuity rates hitting new highs?
Providers of annuities will typically take your money and invest in low-risk assets such as bonds. As bond yields have risen this year thanks to adverse investment market conditions, so annuity rates have also moved upwards.
Annuity rates are also rising because the bank rate is rising. These rates move in the same way as cash savings, rising with interest rates. Annuity rates are increasing at the quickest pace in 30 years currently.
Is it time to buy?
Annuities are looking like a more attractive option, and could feasibly be considered as part of a wider portfolio of investments. It could be an especially attractive option if your long-term life expectancy is short thanks to medical conditions, lifestyle or age.
As is the case for all wealth solutions, it makes sense not to put all your eggs in one basket. Annuities can provide some income peace of mind, but are also not very flexible, unlike investments that produce an income from other assets such as bonds or equities.
Pension freedoms, when introduced, were very popular for a good reason – giving retirees much more choice over what happens to their lifetime of wealth growth.
Annuity rates will also change again over time – it’s impossible to say whether they will continue to climb, or will reverse as markets normalise and inflation peaks.
If you would like to discuss your options, or for any queries in general, don’t hesitate to get in touch with your financial adviser.
