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Plans changed? Updating your financial plan could offer reassurance

Even the best-laid financial plan might need to change at times. If you find yourself in that position, you might benefit from reassurance that you can still reach your goals and will be financially secure.

There’s a whole host of reasons why you might want to adjust your financial plan.

In some cases, it might be a decision you’ve made. Perhaps you’ve decided you want to gift money to loved ones to help them reach their goals, or you want to take a higher income from your pension to fund a new-found hobby.

Other times, the changes might be due to factors outside of your control. For example, if you’ve been made redundant, you might need to create an income until you can find a new position.

Whatever the reason, it can be scary to change course. One cause of apprehension might be the fear of the unknown. Fortunately, updating your financial plan could help you feel more in control and confident.

Updating your cashflow model could help you analyse the impact of the changes

When you create a financial plan, one useful tool that you might use is a cashflow model.

You start by inputting some basic financial information into the model. For example, you might add the value of the assets you hold now, your income, and your outgoings.

One of the key benefits of a cashflow model is that it can help you visualise how your wealth might change over time.

So, you need to provide information to allow it to create a forecast too. This data often falls into two categories:

Your actions – These would be the financial steps you plan to take, such as how much you plan to contribute to your pension each month or the amount you’ll add to an emergency fund.
Assumptions – Some factors may affect your finances that are outside of your control, so for these areas, you may make realistic assumptions. For example, you might review your pension and include average annual returns of 5%.

With these details, a cashflow model can project how your assets and wealth may change and even look decades ahead so you can consider long-term goals.

As a result, cashflow modelling can help you understand if the steps you’re taking now are enough to secure the future you want. But it’s not just useful when everything is going to plan, a cashflow model may be even more valuable when you face unexpected changes.

It’s important to note that the projections from a cashflow model cannot be guaranteed. However, it can provide a useful indicator and highlight where there could be potential gaps in your financial plan.

A cashflow model could help you assess the short- and long-term impact of your new plans

So, you’ve worked with a financial planner and created a cashflow model that aligned with your aspirations. But now, your plans have been derailed. Luckily, you can update the information and model your new circumstances or goals.

Let’s say you’d previously planned to retire at the age of 65. However, ill health has forced you to step back from work five years sooner than you expected. You might have questions like:

Can I afford to take an income from my pension in line with my previous plan?
If I had to take a lower income, how would it affect my lifestyle?
Are there other assets I could use to supplement an income from my pension?
Could retiring sooner affect the value of the estate I leave behind for loved ones?

You can alter the information that goes into your cashflow model to help you answer these questions. So, in the above scenario, you might see how taking the same income you’d previously planned but five years earlier affects your risk of running out of money during your lifetime.

You might find that you have enough to be financially secure and can move forward with your retirement plans.

Alternatively, you may find that your new plan might leave you in a financially vulnerable position in the future. In this case, you can use the cashflow model to try different solutions to understand what might work for you.

By realising there’s a potential shortfall sooner, you’re in a better position to bridge gaps or find a different option, so you’re able to proceed with confidence.

Get in touch to update your financial plan

If your circumstances or goals have changed, you can arrange a meeting with our team to update your financial plan. It could help you assess the potential long-term implications of the changes and understand what steps you might need to take to keep your plan on track.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow modelling.

Fiscal drag: How threshold and allowance freezes affect you

Despite intense speculation that the Labour government would slash tax allowances and exemptions, many are set to remain the same in the 2025/26 tax year. While that might seem like something to celebrate, fiscal drag could mean your tax liability increases in real terms.

To maintain allowances and exemptions in real terms, the government would need to increase them by the rate of inflation.

So, when they are frozen instead, your taxable income is likely to increase as you might be “dragged” into paying tax or paying tax at a higher rate. This generates higher revenues for the government without increasing tax rates. For this reason, freezes are sometimes called “stealth taxes”.

Several tax thresholds have been frozen since April 2022 and aren’t expected to rise until April 2028. When you consider the period of high inflation experienced recently, the effect of fiscal drag could mean you’ve paid a significantly higher proportion of tax, relative to your income, than you did previously.

Income Tax: Thresholds are frozen until April 2028

The previous Conservative government froze Income Tax thresholds in 2022 until April 2028. The current Labour government has said it will continue the freeze.

During the freeze, it’s likely that your income will rise, which would maintain your spending power. However, as the thresholds will not increase, your tax liability might also rise. It may seem like a small increase initially, but it can add up over the years.

The table below shows how the value of Income Tax thresholds would have changed if they had increased in line with inflation between January 2022 and November 2024.

Source: Bank of England

With the freeze expected to remain in place for another three years, the effects of fiscal drag will become more evident.

According to the Office of Budget Responsibility (OBR), freezing Income Tax thresholds mean that between 2022/23 and 2028/29, an extra 4 million people will pay Income Tax. In addition, 3 million will be dragged into the higher-rate tax band and 400,000 will pay the additional-rate of Income Tax for the first time.

The fiscal drag is estimated to raise £42.9 billion in tax by 2027/28.

The OBR noted frozen thresholds are the largest contributor to the rising overall economy-wide tax burden. The freeze will be responsible for almost a third of the 4.5% GDP increase in taxes from 2019/20 to 2028/29.

Freezes to Inheritance Tax thresholds and ISA limits could affect your finances too

It’s not just freezes to Income Tax you may need to be mindful of either. Frozen allowances include the:

Inheritance Tax thresholds: The nil-rate band is frozen at £325,000 – it has been at this level since 2009/10 and will remain the same until April 2028. The residence nil-rate band last increased to £175,000 in 2020/21 and is also frozen until the start of the 2028/29 tax year.
ISA allowance: The amount you can add to your ISA each tax year is frozen at £20,000 for adults and £9,000 for children until 5 April 2030. The amount you can pay into an adult ISA hasn’t increased since 2018/19, and Junior ISAs last increased in 2020/21.

There are other allowances and exemptions that, while not frozen, haven’t increased in line with inflation either.

For example, the amount you can gift in a tax year that will be immediately outside of your estate for Inheritance Tax purposes is known as the “annual exemption”. In 2024/25, the annual exemption is £3,000 and it’s been at this level since 1981.

If the annual exemption had increased in line with inflation between 1981 and November 2024, it’d stand at £11,314.

A financial plan could help you minimise the effects of fiscal drag

While you can’t change tax thresholds or allowances, there might be steps you can incorporate into your financial plan to reduce your overall tax bill.

For instance, increasing your pension contributions could reduce your taxable income and mean you avoid being dragged into a higher Income Tax bracket. While it may mean your take-home pay is lower, it could support long-term retirement goals and may be right for you as a result.

In addition, while the ISA allowance is frozen, if you’re not already depositing the full amount, increasing how much you add to your ISA may reduce your Income Tax bill.

Interest earned on savings that aren’t held in a tax-efficient wrapper, like an ISA, could become liable for Income Tax if they exceed your Personal Savings Allowance (PSA). The PSA is £1,000 if you’re a basic-rate taxpayer, £500 if you’re a higher-rate taxpayer, and £0 if you’re an additional-rate taxpayer.

If you’d like to talk about how fiscal drag may affect your finances and the steps you might take to mitigate the effects, please get in touch.

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.

3 important variables that could affect your sustainable pension withdrawal rate

Retirement is an exciting milestone, with more free time to dedicate to the things you enjoy. Yet, it can also be a daunting time, especially when it comes to managing your finances.

Flexi-access drawdown is a popular way to access your pension savings as it provides flexibility and means you’re in control of your income. However, it also means you’re responsible for ensuring you don’t run out of money.

With the pressure of managing pension withdrawals, it’s perhaps unsurprising that a study in IFA Magazine found that almost half of retirees are worried about spending too much too soon.

Indeed, statistics from the Financial Conduct Authority indicate some retirees could be withdrawing money from their pension at an unsustainable rate.

For example, more than 30% of people accessing a pension with a value between £100,000 and £249,000 in 2023/24, withdrew at least 8% of their pension. Some of these people may have other pensions or assets they could use to fund retirement, but others could find they face a shortfall in the future because they’re accessing their pension at an unsustainable rate.

One of the challenges of managing pension withdrawals is that some factors are outside of your control.

The known unknowns of retirement

When you’re planning your retirement income, you’re likely to need to consider known unknown factors – you know they will affect your retirement plan in some way, but accurately predicting exactly how they’ll affect you at the start of retirement isn’t possible.

The list of known unknowns might be lengthy and some won’t affect all retirees. However, there are three key variables that most retirees could benefit from considering when calculating their sustainable pension withdrawal rate.

1. Life expectancy

If you knew how long your pension needed to provide an income, you could simply break it down into even blocks and rest assured that you wouldn’t run out.

In reality, you don’t know how long your pension needs to last. The average life expectancy could provide a useful indicator, but it’s far from certain.

According to the Office for National Statistics, a 65-year-old man has an average life expectancy of 85. However, he also has a 1 in 4 chance of reaching 92 and around 1 in 10 will celebrate their 96th birthday. For a 65-year-old woman, the average life expectancy is 87, with a 1 in 4 chance of reaching 94 and around 10% will celebrate their 98th birthday.

So, if you based pension withdrawals on the average life expectancy, there’s a chance that you could outlive your pension by a decade or more.

As a result, erring on the side of caution when calculating how long you’ll spend in retirement could be useful. A retirement plan could help you balance long-term financial security with enjoying your early years of retirement.

2. Inflation

The income you’ll need to maintain your lifestyle during retirement is unlikely to be static. Instead, inflation will usually mean your income will need to increase each year.

The Bank of England (BoE) has an annual inflation target of 2%. While this might seem like it’ll have little effect on your income needs, over decades it could add up. In addition, the recent period of high inflation has highlighted that the cost of goods and services can rise at a faster pace.

According to the BoE, if you retired in 2018 with an annual income of £40,000, just five years later your income will need to have increased to almost £50,000 just to provide you with the same spending power.

Failing to consider the effect inflation might have on your needs and wealth could derail your plans.

Indeed, an IFA Magazine report suggests the number of retirees searching for a job increased by 16% in 2024 when compared to a year earlier due to rising living costs.

3. Investment performance

One of the potential benefits of choosing flexi-access drawdown is that your pension will usually remain invested. This provides an opportunity for your pension to generate investment returns.

However, it’s not always straightforward. The performance of your investments could have a direct effect on the sustainable withdrawal rate.

For instance, during a downturn, you’d need to sell a greater proportion of your pension investments to achieve the same income. This could mean you deplete your pension quicker than expected and leave a potential shortfall in the future.

When weighing up the effect of investment performance, you might need to consider questions like:

What are my expected investment returns?
What is an appropriate level of risk for me in retirement?
How should I manage pension withdrawals if the value of my pension falls?

Regular reviews could help you assess investment performance and make adjustments to your retirement income when appropriate.

Other unexpected factors could affect your retirement finances too

It’s not just these three known unknowns of retirement that could affect your finances, either. Other variables outside of your control might affect your income needs too, from emergency repairs to your home to care costs later in life.

When creating a retirement plan, adding a buffer and carrying out regular reviews could help you manage your finances and feel confident about the future.

Get in touch to talk about creating a sustainable retirement income

Contact us to talk about your retirement plans and how you might manage financial variables, including known unknowns. A retirement plan could give you confidence in your finances and mean you can focus on enjoying the next chapter of your life.

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.

How to pass on assets to vulnerable family members

When creating an estate plan, there might be people you want to pass wealth to but they’re not in a position to manage their finances. Using a trust could provide a way to leave a vulnerable loved one assets and feel confident they’ll be effectively managed.

Trusts aren’t used as commonly as other ways to pass on wealth, such as gifting or leaving an inheritance directly. In fact, according to government figures, there were only around 733,000 trusts and estates registered on the Trust Registration Service as of March 2024. Yet, in some circumstances, a trust could present a valuable option.

There are many reasons why you might consider someone vulnerable or not want to pass on assets directly to them. You might consider using a trust if you want to pass on wealth to:

A child
A person at risk of financial abuse
Someone who has made poor financial decisions in the past
An adult who has a disability that affects their ability to manage finances.

A trust may allow you to improve the financial security of loved ones without them being responsible for managing assets.

A trust means someone you choose can manage assets on behalf of beneficiaries

A trust is a legal arrangement that you (the settlor) set up where assets are managed by a person or people (the trustee) for the benefit of one or multiple other people (the beneficiary).

So, while the beneficiary may benefit from the assets, it’s the trustee who will manage them. As the settlor, you can set out how and when you want the assets, and any income they generate, to be used.

For instance, if you want to pass on wealth to your grandchild, you might name their parents as trustees. You could state money may be withdrawn from the trust to cover educational costs and, once the child turns 25, they can withdraw and take control of the remaining assets.

Or, if you want to provide for a disabled adult, you might create a trust that states the trustee is to provide the beneficiary with a regular income for the rest of their life.

Crucially, as the settlor, you can set the terms of the trust so that it suits your goals.

You should note that there are several different types of trust and, once set up, it can be difficult or impossible to reverse the decisions you’ve made. So, seeking professional legal advice if you think a trust could be an option for you may be valuable.

3 important questions to consider if you’re thinking of using a trust

Before you set up a trust, it’s important to consider if it’s the right option for you. Here are three essential questions that may help you start to weigh up the pros and cons.

1. Who would act as the trustee?

Choosing someone to act as a trustee can be difficult, so you might want to consider who you’d ask.

You want a person you can trust to act in line with your wishes and in the best interest of the beneficiaries. However, you may also want to think about the skills they have – are they comfortable handling finances? Are they organised enough to manage the trust effectively?

You can choose more than one trustee, and set out whether you’d like them to make decisions together. You may also choose a professional to act as a trustee, such as a solicitor or financial planner, who would charge a fee for their services.

2. What would be the aim of the trust?

Thinking about the reasons for creating a trust is essential, as it might affect the type of trust that’s right for you and the terms you set out.

For example, a trust that’s simply holding assets until a certain date could be very different from one you want to use to preserve family wealth for future generations.

In some cases, you might find that an alternative option is better suited to your needs.

Let’s say you want to set money aside for your grandchild to access when they turn 18. A Junior ISA (JISA) allows you to save or invest up to £9,000 in 2024/25 tax-efficiently on behalf of a child. The money held in a JISA is locked away until they reach adulthood. So, it might be more appropriate and avoid the complexity a trust may add.

3. How much control would you give the trustee?

If you have a clearly defined idea about how you want the trust to operate, you might choose to set out exactly when the assets can be used. Alternatively, you may give more control to your trustee and allow them to use their judgment.

There isn’t a right or wrong answer, so focusing on what’s important to you is key.

When setting out terms or restrictions, you may want to spend some time weighing up different scenarios and the effect they might have.

For instance, if you want the trust to provide a defined income, you might want to consider:

How the trustee should adjust the income for inflation
Whether they can withdraw a lump sum in certain circumstances
If there is a point you want the beneficiaries to take control of the assets.

Rigid restrictions could have unintended consequences.

Let’s say your loved one has an opportunity to purchase a property. Withdrawing a lump sum to act as a deposit could mean their day-to-day costs fall and provide greater security when compared to renting, but restrictions might mean this isn’t possible. Or if they face a medical emergency, accessing the wealth held in a trust could enable them to receive treatment quicker or provide more options.

Contact us to talk about your estate plan

A trust is often just a small part of an effective estate plan. If you’d like to discuss how you might pass on wealth to loved ones in a way that aligns with your goals and considers your wider financial plan, please get in touch.

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.

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

Investment market update: December 2024

Political instability in Europe and further afield affected investment markets in December. Read on to find out what other factors may have influenced your investment returns at the end of 2024.

Remember to focus on your long-term goals when assessing the performance of your investments. The value of your assets rising and falling is part of investing. What’s important is that the risk profile is appropriate for you and that your decisions align with your circumstances and aspirations.

UK

Hopes that the Bank of England (BoE) would cut its base interest rate before the end of 2024 were dashed when data showed inflation had increased.

Figures from the Office for National Statistics show inflation was 2.6% in the 12 months to November 2024, which was up from the 2.3% recorded a month earlier.

This led to the BoE deciding to hold interest rates despite speculation that a cut was on the horizon. The central bank also said it expects GDP growth to be weaker at the end of 2024 than it had previously predicted.

Data paints a gloomy picture for the manufacturing sector.

According to S&P Global’s Purchasing Managers’ Index (PMI), UK manufacturing hit a nine-month low as output fell for the first time in seven months in November 2024. The decline was driven by new orders falling. Notably, manufacturers are struggling to export their goods, with new orders contracting for 31 consecutive months. Demand has fallen in key markets, including the US, China, the EU, and Middle East.

A survey from the Confederation of British Industry (CBI) indicates that manufacturers aren’t optimistic about the future either. The organisation said orders at UK factories “collapsed” in December to their lowest level since the height of the pandemic in 2020. The slump was linked to political instability in some European markets and uncertainty over US trade policy when Donald Trump becomes president.

Chancellor Rachel Reeves wants to reduce UK trade barriers with the US, stating she wanted to end the “fractious” post-Brexit accord as she went to meet eurozone finance ministers at the start of the month. Closer ties with the EU may benefit some firms that are struggling with exports.

Retailers are also experiencing challenges.

The festive period is often crucial for retailers. Yet, data from Rendle Intelligence and Insights are “bleak” with footfall in the first two weeks of December down 3.1% when compared to 2023. A slew of high street names entered administration in 2024, including Homebase, The Body Shop, and Ted Baker, and the research suggests more could follow suit in the year ahead.

December was a month of ups and downs for investors in the UK stock market.

The month started strong when stock markets increased across Europe on 3 December – dubbed a “Santa rally” in the media. The FTSE 100 – an index of the 100 largest firms on the London Stock Exchange – was up 0.7% despite worries about the economic outlook. EasyJet led the way with a 4% boost.

Yet, just mere weeks later, on 17 December, the FTSE 100 hit a three-week low and lost 0.7%. The biggest faller was Bunzl, a distribution and outsourcing company, which fell 4.6% when it warned persistent deflation would weigh on profits in 2024.

While it might have felt like a bumpy year as an investor, research shows the FTSE 100 has performed well. Indeed, according to AJ Bell, the index had its best year since 2021 and delivered a return of 11.4%. The top performers were NatWest and Rolls-Royce, while JD Sports and B&M were at the bottom of the pack.

Europe

Much like the UK, the manufacturing sector in the eurozone is struggling. Indeed, PMI data shows the sector continued to contract in November 2024 as new factory orders fell. Germany recorded the fastest drop in output and, as the bloc’s largest economy, could drag economic data down.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, told the Guardian: “These numbers look terrible. It’s like the eurozone’s manufacturing recession is never going to end.”

Credit ratings firm Moody’s unexpectedly downgraded French government bonds, which are now rated Aa3 – the fourth highest rating – following the collapse of Michel Barnier’s government. MPs had refused to accept tax hikes and spending cuts in Barnier’s Budget.

Moody’s said: “Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year. As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario.”

The news, unsurprisingly, led to French bonds weakening.

European markets also benefited from the so-called Santa rally on 3 December.

Germany’s DAX, a stock index of the 30 largest German companies on the Frankfurt Exchange, broke the 20,000-point barrier for the first time, despite a new election being called after the government collapsed. The recent boost means the DAX increased by around 3,000 points during 2024.

Similarly, Paris’s stock market index, the CAC, gained 0.6%. Luxury goods makers, like Hermes and LVMH, were among the biggest risers.

US

Unlike Europe, US manufacturing could give investors something to be optimistic about.

The PMI reading for November 2024 was 49.7, up from 48.5. While this means the sector is still below the 50-mark indicating growth, the signs suggest it’s stabilising and could move into more positive territory in the new year.

The service sector paints an even better picture. The PMI indicated the sector is growing at its fastest pace since the Covid-19 pandemic. Expectations of higher output linked to growing optimism about business conditions under the Trump administration led to a flash PMI reading of 56.6 for December, comfortably placing the sector in growth territory.

The job market also bounced back after disappointing figures in October. According to the US Bureau of Labor Statistics, 227,000 jobs were added to the economy in November, compared to just 36,000 a month earlier.

Yet, inflation continues to weigh on the US. In the 12 months to November 2024, inflation increased slightly to 2.7%.

While the Federal Reserve went ahead with an interest rate cut, taking the base rate to 4.25%, it also suggested it would make fewer cuts than expected in 2025 if inflation remains stubborn. The comments led to the S&P 500 index closing almost 3% down, while the tech-focused Nasdaq fell 3.6% on 19 December.

President-elect Trump is set to take office on 20 January 2025, but his plans are already influencing markets. Indeed, on 2 December, the dollar rallied after Trump warned countries in the BRICS bloc that he would impose 100% tariffs if they challenged the US dollar by creating a new rival currency.

The BRICS bloc was originally composed of Brazil, Russia, India, China, and South Africa, which led to the acronym. They have since been joined by Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates.

Asia

In a move that shocked citizens, South Korea’s president declared martial law on 3 December, which led to political chaos. The uncertainty led to South Korea’s currency dropping to a two-year low and exchange-traded funds (ETFs), which track the country’s shares, fell sharply. Indeed, the MSCI South Korea EFT dropped by more than 5% in the immediate aftermath.

Outside of South Korea, stock market performances were more positive in Asia.

On 9 December, Hong Kong’s Hang Seng was up by 2% after China said it would implement a more proactive fiscal policy and planned to loosen monetary policy in 2025. The market was also aided by consumer inflation in China falling to a five-month low in November to 0.2%.

On the same day, Japan revised its economic growth upwards, leading to a 0.3% boost to the Nikkei 225 index.

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

5 practical ways you could keep your child’s retirement on track

Longer lives and financial pressure mean many people believe that retiring in their 60s will become a thing of the past. So, if you want to ensure your child or grandchild can enjoy financial security later in life, how could you help them? Read on to find out.

Two-thirds of Brits believe retiring in your 60s will become a trend of the past

Most people planning for their retirement today, probably imagine themselves stepping away from work in their 60s. Indeed, according to the Office for National Statistics (ONS), in 2021 the average age of retirement for both men and women was 66.

Yet, that milestone could be decades later for younger generations.

A survey carried out by Canada Life found that 69% believe that retiring in your 60s will become a thing of the past. One of the biggest reasons for this is the expectation that we’ll live longer than previous generations. In fact, the median ideal age was found to be 90.

ONS figures highlight how growing life expectancy will affect the population of the UK. Between 2023 and 2050 the number of people aged 65 and above is expected to grow by just under 40%. Similarly, there is expected to be a 200% rise in the number of people who celebrate their 100th birthday during the same period.

Longer lives can present challenges, including the need to fund more years in retirement. So, it’s not surprising that two-thirds of people believe working for longer is the solution. Yet, that may not align with the goals or lifestyle aspirations of younger people.

If you’re worried about how your children or grandchildren are preparing for their retirement, even if it’s decades away, there may be some steps you can take.

How to help younger generations prepare for retirement

1. Encourage them to engage with their pension early

Retirement can seem like a milestone that’s too far away to concern yourself with when you’re starting your career. However, engaging with their pension early could mean loved ones have far more saved for retirement.

Pension contributions are typically invested so they have an opportunity to grow. As the money cannot be withdrawn, the returns are usually invested and may generate additional returns. This compounding effect means that small contributions at the start of a career could grow significantly.

Assuming an annual investment return rate of 5% before fees are considered and a retirement age of 65, the below table highlights how compounding could affect the retirement savings of two workers.

Source: Legal & General

As you can see, person B contributes more than £8,000 extra to their pension, but as they’ve missed out on 18 years of compounding, the value of their pension is almost £60,000 lower when they retire.

So, if your child or grandchild has paused their pension contributions or opted out of their workplace scheme, encouraging them to reconsider their decision could put them on track for a retirement that offers greater financial security.

2. Contribute to their pension on their behalf

If you’d like to lend a helping hand, you could make contributions to your loved one’s pension. Their pension would benefit from an immediate boost and the potential investment returns might mean your initial gifts grow over the long term.

You may want to speak to your family member about the contributions that are already going into their pension, including those made by their employer, to avoid exceeding the Annual Allowance, which could trigger a tax charge.

In the 2024/25 tax year, the Annual Allowance is £60,000 for most people and pension contributions of up to 100% of the pension holder’s annual salary can benefit from tax relief. If the pension holder is a high earner or has already flexibly accessed their pension, their Annual Allowance may be lower.

Unused Annual Allowance may be carried forward from the previous three tax years.

Remember, money that is contributed to a pension isn’t accessible until the pension holder is 55 (rising to 57 in 2028). As a result, you might want to assess your own financial security and the effect a gift could have on it before you contribute to a pension on behalf of a family member.

3. Lend financial support to help them reach other goals

Financial pressures might mean your loved one is considering halting pension contributions. So, speaking to them about other challenges they might be facing could highlight where your support may allow them the financial security to start saving for retirement.

For example, younger family members may be struggling to pay rent and save a deposit to get on the property ladder. A gift from you to help them reach the milestone of homeownership might mean they’re in a better position to start regularly contributing to a pension.

Alternatively, day-to-day financial pressures may mean your child or grandchild is hesitant to place money into a pension that they wouldn’t be able to access until they reached retirement age. In this case, regular financial support that could be used to cover everyday costs might give them the confidence to place money in a pension.

Again, assessing your financial plan and the implications of handing over regular gifts could help you understand the effect it might have on your wealth in both the short and long term.

4. Consider your legacy now

As part of your legacy, your wealth could be used to help children or grandchildren secure financial freedom in retirement. Reviewing your estate plan now could highlight ways you could support this goal, including through gifting assets during your lifetime or leaving wealth after you’ve passed away.

While creating an estate plan, it’s important to keep in mind that things may change. For instance, if you need to pay for care later in life, the inheritance you leave for loved ones could be less than you expect.

5. Refer them to your financial adviser

While loved ones are accumulating wealth, they might think they wouldn’t benefit from working with a financial planner. Yet, it’s never too soon to start thinking about retirement or other long-term goals. In fact, working with a professional before they step back from work could present an opportunity to grow their wealth further and create a more comfortable retirement.

So, if your children or grandchildren aren’t working with a financial planner, introducing them to yours could help get their finances on track.

Get in touch to discuss how you could support loved ones

If you’d like to talk about your options for lending financial support to loved ones, including helping them prepare for retirement, please get in touch. We could work with you to help you balance your financial security and retirement goals with the aid you might want to provide family members.

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

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.

3 insightful reasons why setting goals may reduce financial bias

Subconscious bias can affect your financial decisions. They might mean you make decisions that aren’t right for you. Setting a goal could help reduce the effect bias has. Read on to discover three reasons why.

Cognitive bias is an error in cognition that can happen if your personal beliefs or experiences affect a decision you’re making. So, you might act based on an emotion rather than evidence. In some ways, cognitive bias is useful – it helps you make decisions quickly.

However, there are times when bias is potentially harmful, including when you’re making financial decisions.

Loss aversion is a common type of financial bias that might happen when you’re investing. Loss aversion is a tendency to avoid losses over achieving equivalent gains. The theory suggests that people feel more pain from losses than they feel pleasure from gains.

From an investment perspective, loss aversion could mean you’d prefer to hold your money in cash, even though it could be losing value in real terms once you consider inflation. Or that you choose low-risk investments even when taking greater risks would align with your goals and circumstances.

In these cases, loss aversion could mean missing out on an opportunity to grow your wealth because you’re worried about potential losses.

There are many other types of financial bias, and setting out your goals could help you manage them. Here are three insightful reasons why.

1. A goal could help you understand why certain decisions are right for you

A clearly defined goal can give you a sense of direction and an understanding of why you’re making certain financial decisions.

Having a long-term vision could mean you’re less likely to have a knee-jerk reaction due to emotions or events that are outside of your control. For example, if market volatility means the value of your investments falls, knowing that you’ve invested with a long-term view could help you stick to your plan, even if you’re nervous.

Setting out goals and understanding what’s realistic might remove some other forms of bias too.

Overconfidence bias involves overestimating your skill or knowledge when investing. It could mean you overlook relevant information or feedback because you believe you’re correct. In some cases, investors take more risk than is appropriate for them because they believe they’ll be able to secure higher returns by doing so.

A goal could temper some of the impulsiveness you might experience if you’re overconfident. If you’ve calculated you can secure your goals by achieving average annual investment returns of 4%, you might be less likely to chase potentially higher returns that could result in losses.

2. Setting goals could mean you recognise when emotions are affecting your decisions

Emotions are one of the reasons why people might make financial decisions that aren’t right for them. From feeling fearful during market volatility to being excited when a new opportunity comes along. Emotions might mean you don’t take the time to fully assess your options before acting.

Setting a goal can’t remove your emotions, but it might mean you’re more likely to realise when they could be clouding your judgment.

Let’s say you’re talking to a group of friends who are excitedly talking about an investment opportunity that they say will deliver high returns. It can be easy to be swept up in the conversation and invest without carrying out additional research to see if it’s right for you.

However, if you’ve set an investment goal and know what steps you need to take to reach it, you might be less likely to be side-tracked by emotional decisions.

3. A goal could help you form positive money habits

Working towards large goals often requires consistent and repetitive actions. You might regularly contribute to a savings account, pension, or Stocks and Shares ISA.

Taking consistent actions could help you form positive money habits that mean you’re less likely to stray from your financial plan when emotions or other influences occur.

Do you want help setting your financial goals?

If you’d like help setting financial goals and understanding the steps you could take to achieve them, please get in touch. Having an outside perspective looking at your finances could also highlight where financial bias might affect your decisions.

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

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

Investment market update: September 2024

Economic data suggesting some developed countries, including the US, could fall into a recession continued to affect investment markets in September 2024. Read on to discover other factors that may have affected the performance of your investments.

UK

Data from the Office for National Statistics (ONS) shows inflation remained stable at 2.2% in the 12 months to August. The figure is slightly above the Bank of England’s (BoE) 2% target.

Despite speculation that inflation data would lead to the BoE cutting interest rates, the Bank opted to maintain its base rate at 5%. While good news for savers, it means borrowers, including mortgage holders, are still likely to face higher outgoings when compared to 2021.

Many economists expect the BoE will make an interest rate cut before the end of the year. Indeed, investment bank Goldman Sachs predicts the interest rate will fall to 3% over the next 12 months.

GDP data showed the UK economy returned to growth in July after a plateau in June. However, the figures were disappointing, with just 0.5% growth in the three months to July 2024.

There could be more positive news in the coming months though. Investment bank Peel Hunt optimistically said the UK economy is heading for “above-average growth” as inflation stabilises and consumer demand picks up.

A report from the Office for Budget Responsibility (OBR) provided a less cheerful outlook for the UK. The latest risk and sustainability report warned the UK, and other countries in the world, face long-term pressures, such as an ageing population, climate change, and rising geopolitical tensions.

In addition, the OBR said, based on current policy, public debt is projected to almost triple to more than 270% of GDP over the next 50 years. The comments highlight the challenging backdrop chancellor Rachel Reeves will need to consider as she prepares to deliver her first Budget on 30 October.

There was positive data released from the manufacturing sector. S&P Global’s Purchasing Managers’ Index (PMI) recorded the strongest month in two years. Both output and new orders continued to recover.

Yet, many businesses continue to face significant headwinds. Among those is UK shipbuilder Harland & Wolff, which owns the Belfast shipyard that once built the Titanic. The company entered administration in September.

Research also suggests that trade difficulties following Brexit could worsen. Aston Business School analysed the effect of the Trade and Cooperation Agreement on UK-EU trade relations, and found that trade is down by almost a quarter.

The FTSE 100 experienced ups and downs, including falling 0.6% to a three-week low on 4 September. Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Fresh worries about the health of the global economy have gripped markets, with the FTSE 100 far from immune.”

Europe

Eurozone inflation fell to 2.2% in the 12 months to August 2024. The news gave the European Central Bank the confidence to cut interest rates for the second time this year.

The Paris Olympics provided a short-term boost to the eurozone economy. A PMI output index increased for the first time since May in August 2024 to reach a three-month high of 51.0 – a reading above 50 indicates growth.

However, as the temporary boost of the Olympics fades, additional PMI data isn’t as positive. Indeed, HCOB’s flash PMI suggests the eurozone economy shrank for the first time in seven months in September.

The manufacturing sector in particular is struggling, with a PMI reading of 45.8 in August 2024. Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: “Things are going downhill, and fast. The manufacturing sector has been stuck in a rut.”

As the largest economy in the EU, the conditions in Germany can affect the bloc, and statistics suggest there are risks ahead.

Indeed, the Kiel Institute for the World Economy predicts Germany’s GDP will shrink by 0.1% this year and has halved its growth forecast for 2025 to 0.5%.

Statistics body Destatis reports industrial production in Germany fell by 2.4% in July – far more severe than the 0.3% fall economists had predicted. The automotive sector suffered the largest fall (8.1%) followed by electrical equipment (7%).

German carmaker Volkswagen has spoken about the challenges it faces. The company warned that it has a “year, maybe two” to adapt to lower demand. The economic environment has led to Volkswagen considering making unprecedented closures in its home market for the first time in its history as it tries to cut costs.

US

Inflation in the US fell to its lowest level since February 2021 in August 2024 to 2.5%. In response, the Federal Reserve cut its base interest rate from 5% to 4.75%.

The inflation and interest rate announcements led to the S&P 500 – an index of the 500 largest public companies in the US – jumping 1.5% on 19 September.

Similar to Europe, data indicates the manufacturing sector in the US is struggling. Indeed, the Institute of Supply Management reported it contracted for the fifth consecutive month in August. The news led to a dip in the markets around the world at the start of the month.

Figures from the Bureau of Economic Analysis also indicate a business threat as the trade deficit increased by $5.6 billion (£4.19 billion) in July to $103.1 billion (£77.13 billion).

American company OpenAI, the firm behind ChatGPT, announced it was in talks to raise $6.5 billion (£4.86 billion) from investors at a valuation of $150 billion (£112.21 billion) – making it one of the most valuable start-ups in the world.

Asia

Investment market volatility in Asia highlighted how factors around the world can affect markets. On 4 September, Japan’s Nikkei lost 4.2% and South Korea’s Kospi fell 3.4% after investors were spooked by fears that the US could experience a downturn when poor manufacturing data was posted.

A survey of China’s manufacturers from Caixin suggests export orders were subdued in August and fell for the first time this year as it faced external challenges.

However, China announced stimulus measures aimed at boosting the economy and stock market, as well as supporting the property sector on 24 September.

The news led to stock markets across Asia-Pacific rising – China’s CSI 300 index was up more than 4%. In fact, the announcement led to world stocks hitting a record high when the MSCI World Stocks index increased by 0.3%.

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

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

Why inflation solutions should remain part of your long-term financial plan

High inflation has been a hot topic over the last couple of years, and as its pace stabilises, you might think it no longer needs to be part of your financial plan. Yet, skipping inflation when calculating your long-term finances could leave you with a shortfall.

The government sets the Bank of England (BoE) a target of keeping inflation at 2%.

The BoE explains that inflation that is too high or moves around a lot makes it hard for businesses to set the right prices and for people to plan their spending. However, inflation that is too low, or even negative, may put people off spending because they expect prices to fall. This hesitation to spend could lead to companies failing and people losing their jobs.

As a result, stable inflation is important for the economy.

A combination of the Covid-19 pandemic and the war in Ukraine, as well as other factors, led to the UK and many other countries experiencing a period of high inflation. Indeed, according to the Office for National Statistics (ONS), inflation reached a peak of 11.1% in October 2022 – the highest rate recorded in more than 40 years.

The good news is that the rate of inflation has since fallen and started to stabilise. In the 12 months to August 2024, the ONS reported inflation was slightly above the BoE’s target at 2.2%.

While the immediate pressure of prices rising sharply has eased, that doesn’t mean you can forget about inflation when you’re reviewing your long-term finances.

Even when inflation is stable, prices are often rising

While inflation meeting the BoE’s target won’t often make headlines, it still means that the cost of goods and services is rising. You might think 2% inflation won’t affect your finances too much. Yet, when you look at the long-term impact, the effect could be harmful if it’s something you’ve overlooked.

According to the BoE, inflation averaged 2% a year between 2010 and 2020. So, if you had £20,000 in 2010, you’d need almost £24,320 in 2020 just to maintain the spending power you had a decade ago.

That could have a substantial effect on some parts of your financial plan. For instance, if you’ve set a retirement income without considering how it may need to grow to support your lifestyle, you could find you face a shortfall. During a retirement that could span decades, the effects of even 2% inflation might really add up.

Inflation has only hit the target rate 30% of the time since 1997

What’s more, while the BoE has an inflation target, there are factors outside of its control that may cause it to rise or fall, as the last few years have demonstrated.

Indeed, according to a report in FTAdviser, since 1997, the BoE has missed its target around 70% of the time, and it’s more likely to be above the target than below it.

As a result, even if you’ve factored a 2% rise in inflation into your long-term plan, you could still experience outgoings rising at a quicker pace than your income. Considering the effects of a high inflation environment may help you secure your finances and keep goals on track even when factors outside of your control lead to expenses increasing.

Making inflation part of your financial plan

It’s impossible to know what the rate of inflation will be next year, and when you’re creating a long-term financial plan, you might want to weigh up the effect of inflation over decades. While you can’t predict what will happen, there are often steps you can take to incorporate it into your finances and provide security.

As part of your financial plan, you might consider how to:

Create a financial buffer in case inflation is higher than you expect
Use other assets to support your income during periods of high inflation
Grow your wealth at a pace that could match or beat the rate of inflation
Regularly review your short- and long-term finances to ensure they continue to reflect your current circumstances.

An effective financial plan could help you prepare for the unknown, including the inflation rate.

Contact us to discuss how to incorporate inflation into your financial plan

If you’d like to review your financial plan and understand how inflation might affect your outgoings, we could help. Please contact us to arrange a meeting with our team.

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

3 useful steps that could prevent your business falling victim to a scam

It’s not just your personal finances that may be attractive to fraudsters. As a business owner, you might also want to consider the steps you could take to halt a potential scam that targets your firm. Indeed, research suggests it’s something overlooked by many small business owners.

According to UK Finance’s Annual Fraud Report 2024, almost £1.2 billion was lost to personal and business scams across more than 2.9 million cases in 2023.

The most common type of scams to affect businesses in 2023 were invoice and mandate scams. This is where a scammer may intervene when you’re trying to pay a legitimate invoice to redirect the money to their account. They may pose as legitimate suppliers and claim their bank account details have changed.

Non-personal losses through invoice and mandate scams totalled £35 million in 2023.

Fraudsters might also use a CEO scam to target businesses. In this deception, the scammer would pose as the CEO of the business or another high-ranking team member to convince a member of your staff to make an urgent payment to their account. In some cases, the criminal may even use spoofing technology so it appears messages have come from a genuine email address or phone number.

In 2023, more than 380 businesses fell victim to a CEO scam.

Scams you might more commonly associate with individuals could affect your business too. For instance, in 2023, there were more than 3,600 non-personal purchase scams reported. Businesses were also affected by investment scams, police impersonation, push payments, and even romance scams.

Almost 7 in 10 small businesses use weak passwords to access critical documents

Fraud could leave businesses in a financially vulnerable position. Yet, a survey suggests that many small businesses aren’t taking simple steps to mitigate the risks.

According to a survey reported by HR Review, almost 7 in 10 small businesses could be exposed to fraud because they’re using weak passwords to access critical documents and internal platforms, which could leave them open to cyber threats. In addition, nearly half (47%) did not have up-to-date antivirus software that would detect a hack.

It’s not just your online security that could affect the likelihood of your business being affected by a scam. In many cases, your employees, particularly those with financial responsibilities, could be exploited too.

3 ways to help your employees prevent scams

1. Make scam awareness part of your employee training

Your employees might not be aware of the common scams that could affect businesses and miss the warning signs as a result. Indeed, the HR Review survey found that 48% of businesses fail to provide any cyber security awareness training to employees.

Some members of staff might benefit from further training too. For example, you might want to cover how to check if an invoice is legitimate or what to do if a payment seems suspicious to employees who work in your finance department.

2. Make scams part of conversations at your business

Mentioning the risk scams pose once during training and then never talking about it again could mean employees forget the warning signs or that your team aren’t aware of the latest tactics fraudsters are using. So, next time you read about a scam or hear of another business being affected, a conversation about it could be valuable.

Making scams a topic of conversation could also help employees feel more comfortable raising a potential concern.

3. Keep on top of your finances

Whether you go through the accounts yourself or a trusted employee handles this task, scheduling regular reviews could be helpful. It might mean you spot irregularities far sooner and can minimise the damage a scam does to your business.

We could help you identify a scam

If you fall victim to a scam, it’s often important to act as quickly as possible. If you’ve provided account details or sent money, contacting your bank could potentially prevent losses. You can also use Action Fraud to report a crime.

If you’ve received an email and you’re not sure if it’s a scam, whether it’s related to your personal finances or those of your business, we could help. We may identify the warning signs or red flags you’ve overlooked.

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