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Investment market update: March 2024

While inflation continues to be a challenge for many economies, there are positive signs in the UK and around the world. Read on to find out what may have affected stock markets and your investment portfolio in March 2024.

Remember, volatility is part of investing and most people should invest with a long-term outlook. If you have any questions about your investment strategy or performance, please contact us.

UK

In March, chancellor Jeremy Hunt delivered the 2024 Budget and set out the government’s spending and changes to taxation. One of the big announcements was a 2% cut to employee National Insurance, which follows a previous cut made in the 2023 Autumn Statement.

The Resolution Foundation, a thinktank, said pensioners were among the biggest losers in the Budget, as National Insurance is paid by workers but not people who are retired.

Investment bank Citigroup responded to the Budget by saying the Office for Budget Responsibility (OBR) was being too optimistic when it assumed productivity would grow by 0.9%. The organisation predicts a more modest 0.5% and said it means the UK could be “fiscally offside by around £50 – £60 billion”.

The OBR recognised that productivity has been poor since the 2008 financial crisis. In fact, growth has fallen from 2.5% a year to 0.5% – the economy would have been around 30% bigger today if the pre-2008 trend had continued.

David Miles, a member of the OBR, said the last 15 years have been so bad, that the next 5 to 10 years are likely to be a “bit better”. He particularly noted that AI could help boost productivity.

Inflation continued to fall in the 12 months to February 2024, with a rate of 3.4% – the lowest since September 2021.

Despite the positive news, the Bank of England (BoE) held its base interest rate at 5.25%. Huw Pill, chief economist at the BoE, said he believed more compelling evidence was needed before a cut would be made and it could be “some way off”.

The UK fell into a technical recession at the end of 2023, but the BoE said signs suggest it is already over.

Figures from the S&P Global Purchasing Managers’ Index (PMI) also support this. Private sector growth hit a nine-month high in February, indicating that the recession was shallow. However, the manufacturing sector continued to face challenges, with PMI data showing weak demand and supply chain disruption are contributing to a downturn.

Despite figures from the Insolvency Service indicating businesses are struggling, as insolvencies hit a 30-year high in 2023, there is some good news for investors.

The FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – hit a 10-month high on 21 March when it increased by around 1.1%. Mining stocks were among the main risers amid expectations that the US Federal Reserve will cut its base interest rate soon.

Greggs also saw its stock rise during March. The bakery chain revealed like-for-like sales increased by 13.7% in 2023, while pre-tax profits jumped 27% to £188.3 million. The firm added it expected another year of good progress in 2024.

Europe

According to data from Eurostat, inflation across the eurozone continued to fall in February 2024, when it was 2.6% compared to 2.8% a month earlier.

While many countries in Europe are battling high inflation, Turkey’s rate of inflation has consistently been in double digits since the end of 2019. In February, it hit a 15-month high of 67%. In a bid to cool the soaring cost of living, Turkey’s central bank increased its interest rate to 50%; this compares to a rate of 8.5% just a year ago.

The pan-European Stoxx 600 index reached a record high on 13 March boosted by upbeat company results from the likes of energy supplier E.ON and retailer Zalando. Buoyant company forecasts indicate that businesses are feeling optimistic about the future.

US

Inflation in the US unexpectedly increased to 3.2% in the 12 months to February 2024. The news dampened hopes that an interest rate cut would be announced soon.

A consumer sentiment index from the University of Michigan suggests Americans have a gloomy outlook about economic conditions and prospects for the future. Pessimistic consumers might be more likely to curb their spending, which could harm businesses.

Data from the US Federal Reserve also indicates that businesses are taking a more cautious approach. Average hourly earnings increased by just 0.1% in February 2024, while unemployment reached 3.9% – the highest figure since January 2022.

Technology giant Apple saw its shares fall by around 2.5%, wiping around $70 billion (£55 billion) off the value of the company, on 4 March following an EU-issued fine. The EU fined the company €1.8 billion (£1.54 billion) after it was found to have broken competition laws by imposing curbs on app developers.

Asia

Japan’s main index, the Nikkei, hit 40,000 points for the first time on 4 March after it increased by 0.5%, partly thanks to a weak Japanese Yen helping exporting businesses. The milestone follows a strong start to the year – the Nikkei has gained almost 20% since the start of 2024 thanks to booming technology firms.

The Bank of Japan also made its first interest rate hike in 17 years and ended eight years of negative interest rates, which sought to encourage lending. The bank’s base rate increased from -0.1% to 0.1% after board members said they expected to achieve 2% inflation in the coming year after decades of deflation and stagflation.

China continues to face a property crisis, which is affecting consumer spending and lending, as well as economic growth.

The Chinese government previously cracked down on property speculation that sent prices soaring. However, the property market peaked in 2020 and has faced a downturn ever since.

According to the country’s National Bureau of Statistics, house prices continued to fall in major cities in February. The organisation said it expects real estate to remain the main drag on economic growth in 2024.

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

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

If you have any questions, please get in touch here.

What you need to know about taking your pension tax-free lump sum in 2024/25

Taking a tax-free lump sum from your pension could be a fantastic way to kickstart your retirement plans. If it’s something you’re thinking about, it’s important to consider the long-term implications and understand how much you could withdraw from your pension before facing a tax bill, as the rules have changed in 2024/25.

Previously, you could take up to 25% of your pension as a tax-free lump sum. This could be through a single withdrawal or spread across several. However, following the removal of the pension Lifetime Allowance, there is now a cap.

The “Lump Sum Allowance” is £268,275 in 2024/25

In 2023, chancellor Jeremy Hunt announced the pension Lifetime Allowance (LTA) would be scrapped in the 2024/25 tax year. The LTA limited the amount of pension benefits you could build up during your lifetime without incurring an additional tax charge.

With workers now able to save more into their pension tax-efficiently during their careers, the government has frozen the limit on tax-free withdrawals from your pension.

In 2024/25, you can still usually take up to 25% of your pension tax-free – although now there is a cap on the total tax-free cash you can take. This is the new Lump Sum Allowance (LSA) of £268,275.

Your LSA may be higher if you benefit from one of the various types of LTA “protection”, such as “individual” or “fixed” protection.

Withdrawing a tax-free lump sum could harm your long-term finances

If you want to take a lump sum from your pension, the new rules aren’t the only area you might want to consider. You may also want to weigh up the effect it could have on your long-term finances.

There are plenty of reasons why you may want to take a lump sum from your pension, and some could improve your financial position in retirement. For example, you could use the lump sum to clear your mortgage or other debt, which may significantly reduce your outgoings in retirement and lead to a more comfortable and secure lifestyle.

Alternatively, you might plan to use the money to reach aspirations, like travelling the world once you stop working.

It could be a great way to fund your early retirement plans. However, taking a lump sum from your pension could have a significant effect on your long-term financial security and income. Not only will you be reducing the size of your pension but, as your pension is usually invested, you may have a smaller pot left to invest, reducing your potential for further growth.

Understanding the potential implications of taking a lump sum at the start or during your retirement could help you make a decision that’s right for you.

You may find that after taking a lump sum from your pension you’ll still be financially secure and able to reach long-term goals. If this is the result, you might feel more confident taking a lump sum and more able to enjoy your retirement.

On the other hand, if you find taking a lump sum could harm your long-term finances, you may decide to halt your plans or make adjustments to improve your financial security throughout retirement.

As a financial planner, we can help you understand what the consequences of taking a lump sum could mean for you.

On average, over-55s spend a third of their tax-free lump sum within 6 months

A 2023 survey from Standard Life found that over-55s who have taken a tax-free lump sum, on average, spend or expect to spend a third of their withdrawal within six months.

While having some cash to fall back on in retirement could be useful, withdrawing a lump sum to hold the money outside of your pension might not be financially savvy.

The money held in your pension is usually invested, so it has the potential to deliver returns during your retirement. In addition, investments held in your pension are not liable for Capital Gains Tax, so it provides a tax-efficient way to invest. If you withdraw money from your pension to hold in cash, its value could fall in real terms and you might miss out on potential long-term growth.

Of course, investment returns cannot be guaranteed and they could experience volatility. As a result, it’s important to consider your risk profile and circumstances when deciding how to manage your pension.

Setting out how you plan to use your tax-free lump sum and making it part of your wider financial plan could help you assess if withdrawing it now or in the future is right for you.

Contact us to talk about your pension withdrawals

When you’re accessing your pension, whether to take a lump sum or a regular income, you might worry about what’s right for you. Working with a financial planner could give you confidence in retirement. Please contact us to talk to one of our team about how to access your pension in a way that’s tax-efficient and aligns with your 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 not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

If you have any questions, please get in touch here.

Retirement planning: Bringing together your goals and finances

Effective retirement planning often involves weaving together lots of different threads. As you think about your retirement, you might be unsure how to bring everything together, but a bespoke financial plan could put your mind at ease.

Over the last few months, you’ve read about the importance of deciding how you’ll retire, why you should set out your goals, and your options for accessing your pension. Now, read on to discover the challenges of bringing together these different strands of retirement planning and why a tailored financial plan could provide a solution.

The challenges of retirement planning you could face

A common concern among those approaching retirement is whether they have enough money to retire. Even after the milestone, you might worry about running out of money too soon.

Understanding what a sustainable income is for your circumstances can be difficult. After all, you don’t know how long you’ll spend in retirement and you might need to factor in a range of influences outside of your control, such as the effect inflation will have on your expenses.

As a result, you might not be confident in your ability to live the lifestyle you want once you give up work.

Uncertainty could mean you spend too much too soon, which could leave you in a financially vulnerable position in your later years. Alternatively, it might lead to you being more frugal than necessary and missing out on retirement experiences.

There could be other challenges too. Perhaps you’re considering taking a lump sum out of your pension or using assets to fund a one-off expense but you’re unsure about the long-term effect it may have. Or you want to ensure you leave an inheritance behind to support loved ones after you’ve passed away.

While pensions are often the main source of income in retirement, retirees will often have other assets at their disposal too. You might be unsure how you could use your savings, property, or investments to support your retirement goals, but financial planning could help.

A financial plan will bring together your aspirations and finances

When you think about what financial planning involves, your mind might turn towards understanding your assets. However, an effective financial plan starts by understanding what you want to achieve.

At retirement, this might be the lifestyle you want to enjoy for the rest of your life. You may have other priorities too, such as lending support to your family or ensuring your partner is also financially secure.

Once you’ve set out your lifestyle goals, you can start to review your assets and how they might make these objectives achievable.

One of the benefits of working with a financial planner is that they may help you bring together these different goals. So, a retirement plan that’s tailored to you may consider what a sustainable income is, but it might also include:

• Gifting assets to your loved ones during your lifetime
• Putting assets aside for your family to inherit when you pass away
• Financial protection that could provide for your partner if the worst happened
• A safety net that may give you peace of mind
• Provisions in case you need care in the future.

Using a tool called “cashflow modelling”, we could help you visualise how to use your wealth to reach your goals.

By adding details about your assets, cashflow modelling could show how your wealth will change over time depending on the decisions you make. For instance, it could demonstrate how long your pension may last if it was used to provide an annual income of £35,000 or £45,000. Or how using your investments to supplement your income might provide you with greater financial freedom.

Cashflow modelling could also highlight potential risks. You can model different scenarios, including those that are outside of your control, to understand how they might affect your lifestyle and financial security.

For example, could the rising cost of living place pressure on your finances 20 years after you’ve retired? By identifying potential risks at the start of retirement, you may be able to take steps to mitigate them or create a safety net. To manage the effect of inflation on your outgoings, you may plan to increase the income from your pension each year to preserve your spending power.

As a result, working with a financial planner could help you realise your retirement goals and give you financial confidence as you start the next chapter of your life.

Contact us to talk about your retirement plans

If you’re preparing for retirement, whether it’s a milestone you hope to reach this year or it’s a decade away, we could offer you support. Please contact us to talk about your retirement aspirations and how your finances may provide you with security once you give up work.

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 cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

If you have any questions, please get in touch here.

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