Putting life on hold

Cost-of-living crisis delays homeownership, having children and retirement.

Rising living costs have been so significant in recent months that most UK households will have noticed a squeeze on their monthly budgets. Not only does this have a direct impact on people’s lifestyles, even though they are making every effort to cut back, but it has a knock-on effect on their lifelong goals such as owning a home or retiring comfortably.

Millions of people across the UK fear that the long-term impact of today’s rising living costs could see their life goals delayed or even missed altogether, according to new research[1]. Almost two-thirds (64%), the equivalent of 33 million people across the country, are concerned about the future due to the current state of their finances.

Tackling rising expenses

Households are tackling rising expenses by turning off the heating (48%), reducing their grocery spend (37%) and even driving their vehicles less (24%). However, over half of UK adults (56%) feel they have already done everything they can to save money, while savings have also taken a hit. Nearly a third (30%) no longer have a ‘savings buffer’ to cover unexpected costs.

More than nine million potential homeowners – 48% of all people planning to purchase a home – now estimate they will need to delay this goal, with almost a fifth (18%) of this group expecting it will need to be delayed by five years or more.

Wedding dreams delayed

An additional 12% of prospective homeowners now don’t ever think they will own a home due to greater financial pressures. Dreams of getting married (7.2 million potential brides and grooms – 47%) and even parenthood (50% of those who plan to have a/another child – 6.8 million people) have also been delayed as a result.

Future financial support

Parents who hoped to provide future financial support for their children are cutting back or scrapping their plans. Almost two in five (39%) people who planned to set a lump sum aside for their children now think they will have to delay this.

Almost a fifth (16%) do not see themselves ever being able to help out their children as a result, while 39% of people who had planned to give their children a deposit on their home now say they will delay this. Almost one in four of these parents (23%) say they will never be able to fund their children’s deposit.

Long-term goals

Longer term, 45% of people who had dreams for retirement anticipate that they will have to put them on hold. This is the equivalent of over 11 million people across the UK and includes 38% of people in the crucial decade before retirement who expect to delay retirement by at least a year, if not more. More than one in ten (12%) of people think they are never likely to retire.

Despite current challenges having such a fundamental impact on people’s long-term goals, half of UK adults (52%) haven’t sought guidance or support to better understand how to tackle their money woes. Those that have looked for help most commonly turn to price comparison websites (19%), their family (15%) or the news (12%). Only 7% (3.9 million people) have sought out professional financial advice.

Pressure on finances

One way to help ease the pressure on household budgets is to make sure that people are getting all the benefits and tax credits they are entitled to. There are a number of government schemes available which can help with things like childcare costs, housing costs and council tax. Make sure you are claiming everything you are entitled to by checking the government’s website.

Another way to ease the pressure on your finances is to make sure you are getting the best deal on your essential bills. This includes things like your energy bills, your water bill and your broadband package. There are a number of comparison websites which can help you to find the best deals. It is also worth speaking to your current providers to see if they can offer you a better deal.

Source data:

[1] Opinium survey of 4,001 UK adults was conducted between 27–31 May 2022 for Legal & General.

Inheritance Tax receipts reach £6.1bn

What if I could make my wealth more tax-efficient?

We all want to leave a legacy and make sure the ones we care about most are well taken care of when we’re gone. That’s why making plans for Inheritance Tax is so important, to have confidence that your children, grandchildren and those you hold dearest will be taken care of long into the future.

Inheritance Tax is a tax on the estate of someone who has passed away. The standard Inheritance Tax rate is 40% in the current 2022/23 tax year. Your estate consists of everything you own. This includes savings, investments, property, life insurance payouts (not written in an appropriate trust) and personal possessions. Your debts and liabilities are then subtracted from the total value of your assets.

Passing on your main residence to direct relatives

Every person in the UK currently has an Inheritance Tax allowance of £325,000 (frozen until April 2026). This is known as the nil-rate band (NRB). In 2017, an extra allowance was introduced to make it easier to pass on your main residence to direct relatives (i.e. a child or grandchild) without incurring Inheritance Tax. This allowance is currently £175,000, known as the residence nil-rate band (RNRB), and is on top of the standard nil-rate band of £325,000.

A tapered withdrawal applies to the RNRB when the overall value of an estate exceeds £2 million. The withdrawal rate is £1 for every £2 over the £2 million threshold.

Allowed to use both tax-free allowances

If you are married or in a registered civil partnership, you are allowed to pass on your assets to your partner Inheritance Tax-free in most cases. The surviving partner is then allowed to use both tax-free allowances. Provided the first person to pass away leaves all of their assets to their surviving spouse, the surviving spouse will have an Inheritance Tax allowance of £650,000 (£1 million if they are eligible for the RNRB).

According to recent figures released by HM Revenue & Customs (HMRC), more estates in the UK are now paying Inheritance Tax than ever before[1].

Paying Inheritance Tax unexpectedly

Inheritance Tax receipts totalled £6.1 billion in the 2021/2022 tax year, up £729 million on the year prior. This 14% increase marks the largest single-year rise in Inheritance Tax receipts since the 2015/2016 tax year. The increase is the result of the ongoing freeze on the nil-rate Inheritance Tax band and residence nil-rate Inheritance Tax band.

Many more families are finding the total value of their estate – driven by a rapid growth in house prices, savings and other assets – is likely to be above £1million at the point of death, meaning many more estates could end up having to pay Inheritance Tax unexpectedly.

Start conversations with your loved ones

In the 2019/20 tax year, there were 23,000 such deaths, up 4% on the year prior[1]. Given this data only covers to the start of the pandemic, this number is likely to have risen considerably over the past couple of years as asset prices grew.

With many more estates likely to be subject to an Inheritance Tax bill, it remains important that you have a conversation with your loved ones sooner rather than later so that you all fully understand your estate, the value of it and the potential to pay an Inheritance Tax bill.

Save your family thousands of pounds

When discussing your Will and any potential Inheritance Tax liability, there are things that can be put into place to mitigate or reduce a future payment.
That’s why planning for Inheritance Tax is a fundamental part of financial planning. It could potentially save your family thousands of pounds in Inheritance Tax payments when you die and ensure that your wealth is preserved for future generations.

Source data:

[1] https://www.gov.uk/government/statistics/inheritance-tax-statistics-commentary/inheritance-tax-statistics-commentary

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION AND TRUST ADVICE AND WILL WRITING. TRUSTS ARE A HIGHLY COMPLEX AREA OF FINANCIAL PLANNING.

INFORMATION PROVIDED AND ANY OPINIONS EXPRESSED ARE FOR GENERAL GUIDANCE ONLY AND NOT PERSONAL TO YOUR CIRCUMSTANCES, NOR ARE INTENDED TO PROVIDE SPECIFIC ADVICE.

TAX LAWS ARE SUBJECT TO CHANGE AND TAXATION WILL VARY DEPENDINGON INDIVIDUAL CIRCUMSTANCES.

Self-employed extremely vulnerable to loss of income

81% aren’t seeking financial advice.

Self-employed people are at risk of financial hardship if they don’t have sufficient provision in place. Without a regular income, it can be difficult to cover expenses and also save for the future. In many cases, the self-employed are unable to claim for many of the benefits that employees are entitled to, including statutory sick pay.

Being self-employed also means you don’t have the luxury of having an employer to rely on for sickness cover or health insurance, which can make you extremely vulnerable to loss of income or unexpected financial shocks.

Without a regular income

So if you’re self-employed, it’s essential you’re prepared for anything by having the right protection in place. According to new research, over half (57%) of self-employed workers in the UK rely on personal savings when they are not working, yet a worrying 81% aren’t seeking financial advice[1].

Being self-employed can offer numerous benefits, such as flexible hours and the opportunity to work with a wide range of people, but self-employed workers can also face financial vulnerability. Over two-thirds (64%) of those who are self-employed in the UK revealed they are without a regular income, with just one in five (23%) receiving a monthly pay packet.

Owning a business

The research also found that almost half (48%) of self-employed people see their income fluctuate as a result of owning their own business, with a similar proportion (49%) putting this down to being a freelancer, contractor or consultant.

As the cost of living rises and private rents in the UK increase at the fastest rate in five years, a quarter (24%) of those surveyed said they only had enough money to cover such costs for three months if they were unable to work.

Vulnerability to financial shocks

With the research highlighting the group’s vulnerability to financial shocks and the importance of expert financial advice, one in three (31%) of those surveyed don’t think they can afford professional advice, while one-quarter (24%) say they hadn’t thought about seeking professional financial advice.
Not being eligible for Statutory Sick Pay (SSP) can prove a real problem for the self-employed and their financial resilience – during the pandemic, a fifth (21%) of all applications to the Test and Trace Support Payment scheme were from this group, according to a Freedom of Information request by The Community Union.

Secure financial protection

And while many have taken steps to secure financial protection for themselves and their families, 13% of self-employed workers in the UK still don’t have critical illness cover or life insurance.

Of these respondents, just under a third (31%) said these forms of protection aren’t a financial priority, one in four (25%) said they were prepared to risk not being covered, while a similar amount said they didn’t require these policies (27%) or couldn’t afford them (24%).

Source data:

[1] The research was carried out online by Opinium Research across a total of 2,002 UK adults (Booster sample of 502 self-employed workers and 1,015 Renters). Fieldwork was carried out between 21–27 October 2021.

How to reduce Inheritance Tax by leaving a gift

Planning for your wealth preservation and the eventual transfer of that wealth.

When you’ve worked hard and invested carefully to build your wealth, you want to look after it. That’s why it’s important to plan for your wealth preservation and the eventual transfer of that wealth.

If you’re considering making a gift to someone, there are a few things you need to know about Inheritance Tax. Gifts can be a great way to reduce the amount of Inheritance Tax that your family will have to pay when you die, but there are some rules that you need to follow.

Make use of the annual exemption

Inheritance Tax is a tax that is levied on the estate of a person who has died. The estate is the value of all the property and assets that the person owned at the time of their death. Inheritance Tax is charged at 40% (tax year 2022/23 – a UK tax year runs from 6 April to the following 5 April) on anything above the Inheritance Tax threshold, which is currently £325,000.

There are some gifts that are exempt from Inheritance Tax, such as gifts to your spouse or registered civil partner, or gifts to charities. However, you can also reduce the amount of Inheritance Tax that your family may have to pay by making use of the annual exemption and also carrying forward any unused annual exemption from the previous year.

Avoid paying Inheritance Tax

If you’re thinking about making a gift, there are a few things you need to bear in mind. Firstly, you need to make sure that the gift is genuine and that you’re not just trying to avoid paying Inheritance Tax. Secondly, you need to consider whether the person you’re giving the gift to can afford to pay any Inheritance Tax that might be due on it. And finally, you need to think about what will happen to the asset after you die.

You can make exempt gifts of up to £250 as long as each gift goes to a different person and it’s the only exempt gift they’ve had from you in that tax year. This will commonly include birthday and Christmas gifts given from your regular income.

Money or items of property

A wedding gift from a parent to their child of up to £5,000, from grandparent to grandchild of up to £2,500, or up to £1,000 to someone else, is also exempt.

In addition, each tax year you have what’s known as an annual exemption. Under this you can give away money or items of property to the value of £3,000. This can all go to one person or be shared between several people. And if you didn’t use that exemption in the previous tax year, you can use it in the current tax year and give away £6,000.

Making regular payments

Known as ‘normal expenditure out of excess income,’ you’re able to make regular payments from income you don’t need to maintain your normal standard of living. For example, if you wanted to pay a loved one’s rent or mortgage, or make regular payments into a savings account for your grandchild.

There isn’t a limit on how much you can give away and, like the exempt gifts above, the amount you gift will leave your estate straightaway. But you must be able to afford the payments after your regular living costs and without having to cut back. Plus the payments need to come from your normal monthly income.
Working out if there’s tax to pay

If you wanted, you could combine regular payments with your annual exemption in the same tax year so that one person can receive even more. It’s important to carefully consider how much you can afford – although you may not need the money now, your circumstances in the future could change.

Keeping a record of the gifts you give is essential. It helps you show which are exempt and which may have to be included as part of your estate. And in the event of your death, it will also help those responsible for the administration of your estate when it comes to claiming any allowances and working out if there’s tax to pay.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS.

ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

Tips for a healthy pension as you approach retirement

What really important retirement questions should you be asking?

As you approach the last five years before your retirement, there will be a lot of things to consider. You’ll need to think about your finances, your health, your housing situation, and your plans for the future to live comfortably in retirement.

There will be lots of questions to ask: How much money will I need to have saved? What will my income sources be in retirement? What kind of lifestyle do I want in retirement? What are will my health care needs be in retirement? What are my long-term care needs in retirement? What are my estate planning needs in retirement? What are my tax considerations in retirement?

There are also a number of things to review in order to ensure you have a comfortable and enjoyable retirement.

Things you might want to consider as your retirement approaches. Here are just a few:

Track down your pensions

There are a number of ways you can track down a pension in the UK. But the most straight forward is to use the Governments Pension Tracing
Service to help you find lost pensions – visit: https://www.gov.uk/find-pension-contact-details.

The most important thing is to keep good records and to know where your pension money is invested. If you have moved jobs or changed address, update your records with your current contact details. This will help ensure that you receive any correspondence relating to your pension.

When can you access your pension/s?

The earliest you can currently access your UK pension is age 55 (this will be changing to age 57 in 2028). However, this does not mean you automatically receive your pension at this age – it simply means that you can start to take benefits if you wish. The exact amount and how often you receive your pension payments will depend on the rules of the specific scheme you’re in.

For workplace and personal pensions, there’s no set retirement age, so it’s down to the rules of the individual scheme. Some schemes may require you to retire at a certain age, while others may give you the flexibility to carry on working for as long as you want. The decision of when to take your pension is a personal one, and will depend on your individual circumstances.

What’s your pension’s value?

There are many benefits to checking your UK pension’s value regularly as you approach retirement. By doing so, you can ensure that your pension remains on track to providing you with the income you will eventually want in retirement.

By keeping track of your pension’s value, you can be sure that you are making the most of your investment and are keeping an eye on any changes in the value of your retirement fund. This is important because it will help you identify want adjustments, if any, need to be made to your retirement plans.

Get a state pension forecast

A state pension forecast gives you an estimate of the amount of money you will receive from the Government once you reach retirement age. To obtain your forecast you can do this online through the Government’s website, visit; https://www.gov.uk/check-state-pension. When requesting your forecast, you will need to provide personal information, such as your date of birth and National Insurance number.

Once you have received your forecast, it is important to keep in mind that the amount stated is only an estimate. The actual amount you receive may be higher or lower than what is indicated on your forecast, depending on a number of factors.

Find out the value of your other investments

You need to obtain an accurate estimate of the value of your other investments when planning for retirement. These will play a role in how much money you’ll need to withdraw from your retirement accounts each year. If you have a large investment portfolio, you may be able to withdraw less each year, which could help stretch your retirement savings further.

The value of your other investments are likely to impact on how much income you’ll need to generate from them in order to meet your retirement expenses. If you have a more modest portfolio, you may need to withdraw more each year in order to cover your costs. Knowing the value will enable you to determine whether you’re on track to reaching your retirement goals. If your portfolio is worth less than you had hoped, you may need to make adjustments to your savings and investment strategy in order to realign your retirement plans.

How will you access your pension?

If you have a UK Defined Contribution pension, you may be able to take some or all of your pension benefits as a lump sum from age 55 (age 57 in 2028). This is known as ‘pension unlocking.’ You can take up to one-quarter of your pension pot as a tax-free lump sum. The remaining balance can be used to provide an income for life.
However, there are some things you should bear in mind before taking this step. Taking your pension benefits as a lump sum will mean that you will have less money to live on in retirement. This is because the lump sum will be subject to income tax and by taking your pension benefits as a lump sum may also affect your entitlement to certain state benefits, such as the State Pension.

Make a retirement budget

It’s no secret that retirement can be expensive, especially with the effects of rising inflation. In addition to the obvious costs, like housing and healthcare, there are a myriad of other expenses that can quickly add up. From travel and leisure to groceries and utilities, retirees have plenty of bills to pay. That’s why it’s so important to create a retirement budget. By understanding where your money is going you can identify potential areas of improvement.

A retirement budget doesn’t have to be complicated. But it should include all of your expected sources of income, as well as all of your anticipated expenses. Once you have a clear picture of your cash flow, you can start making adjustments to ensure you can look forward to enjoying your retirement years.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

Inflation eating your savings?

How to benefit from tax reliefs in the current financial year.

As your income increases, the complexity of your finances may too. Tax-efficiency is a key consideration when investing because it can make such an enormous difference to your wealth and quality of life.

However, the type of investment and tax-efficiency you should be looking for depends firstly on whether your priority is to save a lump sum for the future, or to draw an income today.

There are a number of allowances and reliefs available to UK taxpayers on their savings and investments. It is important to make use of these, as they can help to reduce your overall tax bill.

Maximise your ISA allowance

If you’re looking to save money on your taxes, if you’re a UK resident one way to do so is by contributing to an Individual Savings Account (ISA). With an ISA, you can shelter up to £20,000 of your income from taxation in the 2022/23 tax year.

Stocks & Shares ISA

If you’re looking to maximise your ISA allowance in this current tax year, you could consider opening a Stocks & Shares ISA. With a Stocks & Shares ISA, you can invest in a wide range of assets, including shares, corporate and government bonds, unit trusts, investment trusts, exchange-traded funds, individual stocks and shares and OEICs (Open Ended Investment Companies). Not only will your investment grow tax-efficiently, you’ll also benefit from the potential for capital gains.

Cash ISA

Another option is to open a Cash ISA. With a Cash ISA, you can earn interest on your savings without having to pay any tax on the interest earned. This makes it an ideal way to boost your savings while minimising your tax liability. A Cash ISA is available to anyone aged 16 or over, while an ISA invested in any combination of cash and shares is available to those over the age of 18.

Lifetime ISA (LISA)

If you’re looking to save for retirement, you may also want to consider opening a Lifetime ISA (LISA), which is available for people aged between 18 and 40. With a Lifetime ISA, you can save up to £4,000 in the current tax year. The government will add a 25% bonus to savings held in a LISA, up to a maximum of £1,000 per year, and this doesn’t count towards your ISA allowance.

The money saved in a LISA can be used for a wide range of purposes, including buying your first home or saving for retirement. It’s also important to note that any withdrawals from the LISA that are not put towards purchasing a first home before the age of 60 will incur a penalty of 25% of the value of the withdrawal — therefore losing the interest applied.

You need to bear in mind that the money you put into a LISA each year forms part of your overall £20,000 ISA allowance — so if you put £4,000 in a LISA during the tax year, you’ll be able to put £16,000 into other existing ISAs.

Junior ISA (JISA)

Finally, if you have children, you may want to consider opening a Junior ISA (JISA) for them. The Junior ISA is available to UK residents aged under the age of 18 who do not have a child trust fund account. Under-18s, or their parents can put up to £9,000 in a Junior ISA each tax year. The money saved in a Junior ISA will grow tax-efficiently and can be used for a wide range of purposes, including education and training costs.
If unused, your ISA allowance cannot be carried from one tax year to the next.

Consider putting more into a pension

If you’re a UK resident there are a number of reasons to consider putting more into your defined contribution pension. One is that the tax relief on your contributions are very generous. Another is that, if you are a higher rate taxpayer, you receive additional relief on your contributions. But some high earners should be aware that their annual allowance may be reduced.

Under the current rules for tax year 2022/23 the maximum contributions which are eligible for tax relief is the lower of your gross income and £40,000 including tax relief. Increasing your pension contributions is a very effective way of saving for retirement. By putting more into your pension, you will be able to build up a larger pot of money which can provide you with a comfortable retirement income.

Making the most of retirement prospects

It is also worth considering increasing your pension contributions if you have recently had a pay rise or come into some extra money. By doing this, you will ensure that you are making the most of your finances and making the most of your retirement prospects. You can also carry forward unused annual allowances from the previous three tax years, subject to certain rules, providing further scope for making contributions.

If you earn over £100,000, making pension contributions can be highly advantageous. Your personal allowance is reduced by £1 for every £2 of income above £100,000; this means your allowance is zero if your income is £125,140 or above. However, if you make a pension contribution, you are able to offset the reduction in your personal allowance.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Recession-proof your finances

10 practical steps to ensure your money is working hard for you.

In these uncertain times, it’s more important than ever to make sure your finances are in order. The Bank of England believes that a painful squeeze on our living standards, driven, primarily, by soaring energy prices, is set to intensify and will push the UK economy into recession later this year.[1]

Making your finances recession-proof is all about taking practical steps to ensure your money is working hard for you. It is vital to be completely honest with yourself about your financial situation.

By conducting a thorough audit of your finances and gaining a comprehensive understanding of all your incomes and outgoings, this will show you exactly where your cash is going and, most importantly, help you identify problematic spending behaviour.

Here are 10 tips to help you recession-proof your finances:

1. Make a budget and stick to it.

This will help you keep track of your spending and ensure that you’re not overspending.

2. Save, save, save!

Try to put away as much money as you can into savings account so that you have a cushion in case of tough times.

3. Invest in yourself.

Take the time to learn new skills or improve upon existing ones. This will make you more valuable in the job market if you need to make a job or career change.

4. Remove any unnecessary payments.

Look at your bank account and remove any pain-free direct debits. Consider if you’re currently paying for things you don’t really need, for example subscriptions.

5. Time to switch.

Look at energy tariffs, home insurance, car insurance, broadband, TV package, mobile tariff – now might be a good time to switch.

6. Stay disciplined with your debt.

Make sure you’re making all of your payments on time and in full. This will help you avoid costly late fees and keep your credit in good shape.

7. Pay off high interest.

Prioritise any high-interest debt, such as credit card debt, freeing up more money in your budget to cover other expenses if your income decreases.

8. Have an emergency fund.

This is a must in case you lose your job or have any unexpected expenses. Try to save up at least between 3 to 6 months’ worth of living expenses so that you’re expenditure is covered.

9. Diversify your Income.

Don’t put all your eggs in one basket. Having multiple streams of income can really help. If one income source starts to dwindle – or gets eliminated completely – this will provide other sources to fall back on.

10. Diversify your investments.

In addition to diversifying your income, it’s also important to diversify your investments. Review your investment portfolio and make sure your investments are spread across different industries and even different types of asset classes.

Source data:

[1] https://www.bankofengland.co.uk/monetary-policy-report/2022/may-2022

Show me the money

How to invest your money and avoid costly mistakes.

It’s not surprising that the world of investing can seem complex, especially in the current global economic climate. Investors face an endless supply of market news, many investment choices and often-changing market conditions.

There are a number of key principles that every investor should follow with the aim of building an effective long-term strategy designed to achieve their financial goals.

Here’s our rundown of the 10 principles that every investor needs to know:

1. Set investment goals

It’s important that you set yourself investment goals – this will help you stay focused and on track to achieving your financial objectives – with a well-structured plan in place, you can confidently stay committed to it.

There are a number of factors to consider when setting your goals, such as your age, investment timeframe and risk tolerance.

2. Plan on living a long time, and saving more for it

People aged 65 years in the UK in 2020 can expect to live on average a further 19.7 years for males and 22.0 years for females, projected to rise to 21.9 years for males and 24.1 years for females aged 65 years in 2045[1].

Investors should start early, invest with discipline and have a plan for their future.

3. Cash is rarely king, and inflation eats away at your purchasing power

Cash is a popular asset class, but its important to remember that it is not always king – inflation can erode the purchasing power of your cash, making it a less attractive option in the long run.

When inflation is taken into account, cash typically lags behind other asset classes such as stocks and bonds which can mean that over time, cash will generally be worth less in terms of purchasing power.

4. Start early, and re-invest income, compounding works miracles

Compounding is often called the eighth wonder of the world – by starting to invest early and reinvesting your income, you can take advantage of compounding to build your wealth over time.

The power of compounding is so great that delaying investing by even just a few years, or choosing not to reinvest income, can make an enormous difference to your eventual returns.

5. Returns and risks generally go hand in hand, so be realistic about your objectives and what you can achieve

Of course, you always want to aim for the highest possible return while taking on the least amount of risk – but in reality, there is usually a trade-off involved – the higher the potential return, the higher the risk. And vice versa.

Therefore, if you want to target a higher level of return, you have to be willing, and able, to tolerate larger swings in the value of your investments along the way.

6. Volatility is normal, so keep your head when all about you are losing theirs

Volatility is a normal part of the market, so don’t let it rattle you – keep your head when all about you are losing theirs, and remember that the best time to invest is often when others are panicking.

So don’t panic when the markets are down. Instead, stay calm and focused on your long-term goals.

7. Timing the market is difficult, staying invested matters

It’s no secret that timing the stock market is difficult. In fact, it’s often said that trying to time the market is a fool’s errand – by staying invested you ensure that you’re participating in the long-term growth of the market and helps to mitigate the effects of volatility.

Staying invested in the market allows you to take advantage of opportunities as they arise. By staying invested, you’ll be in a position to buy when prices are low and sell when prices are high.

8. Diversification works, don’t put all your eggs in one basket

By spreading your money across different investments, you can minimise your risk and maximise your chances of success.

Over time, different investments will tend to even out, so the aim is to grow your money even if some investments under perform due to market movements.

9. Review your portfolio

Reviewing your investment portfolio allows you to monitor your progress and ensure that your investments are performing as expected, giving you the opportunity to make changes to your portfolio if necessary.

It helps you stay disciplined and focused on your long-term goals.

10. If it seems too good to be true, it usually will be

Promises of high returns with little or no risk are almost always too good to be true – there are a lot of scams out there, and many people looking to take advantage of unsuspecting investors.

Before investing, consult with a financial professional to help you understand the risks involved.

Source data:

[1] The Office for National Statistics (ONS) – Past and projected period and cohort life tables: 2020-based, UK, 1981 to 2070

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Self-employed vulnerable to financial shocks

New research highlights that 81% aren’t seeking financial advice.

As more and more people reject the traditional working structure in favour of becoming self-employed, some people could be at risk of financial insecurity as they lose out on employee benefits that offer protection in the present, and financial planning for the future.

New research highlights this groups vulnerability to financial shocks and the importance of expert financial advice to open up conversations to ensure that all aspects of protection are discussed, and that the right solutions are in place to help create financial peace of mind.

Facing financial hardship

If you are self-employed, you may not have the same safety net as those who are employed by someone else. If you become sick or injured and are unable to work, you could face financial hardship without income protection insurance.

Income protection insurance could help replace your lost income if you are unable to work due to an illness or injury. It can give you peace of mind knowing that you will still be able to meet your financial obligations even if you are unable to work.

Seeking financial advice

Over half (57%) of self-employed workers in the UK rely on personal savings when they are not working, yet a massive 81% aren’t seeking financial advice according to new research[1]. Over two-thirds (64%) of those who are self-employed in the UK revealed they are without a regular income, with just one in five (23%) receiving a monthly pay packet.

Vulnerability to financial shocks

As the cost of living rises and private rents and mortgages in the UK increase at the fastest rate in five years, a quarter (24%) of those surveyed said they only had enough money to cover such costs for three months if they were unable to work.

With the research highlighting the group’s vulnerability to financial shocks and the importance of expert financial advice, worryingly one-quarter (24%) say they hadn’t thought about seeking professional advice.

Secure financial protection

Not being eligible for Statutory Sick Pay (SSP) can prove a real problem for the self-employed and their financial resilience – during the pandemic, a fifth (21%) of all applications to the Test and Trace Support Payment scheme were from this group, according to a Freedom of Information request by The Community Union.

And while many have taken steps to secure financial protection for themselves and their families, 13% of self-employed workers in the UK still don’t have critical illness cover or life insurance.

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Managing the impact to your pension

Just two out of five have planned for inflation in retirement.

Retirement planning can be complex at the best of times so it is easy to understand how some people can find it daunting to take into account factors like inflation. The reality is that inflation hurts everyone, but it can be especially harmful to retirees.

Whether it’s the price of food, fuel, energy or other goods and services that we purchase, inflation is definitely increasing. The current economic climate clearly illustrates just how important it is to consider the impact of inflation on your future retirement income and take proactive steps to manage this.

Reaching historic highs

Just two out of five (37%) over-55s have planned for the impact of inflation on their spending power when they stop work, according to new research[1]. As the Consumer Price Inflation continues to reach historic highs, many over-55s who are either approaching retirement or have retired are facing an inflation shock as they try to manage their retirement income.

Indeed, 41% admitted they had not planned for inflation or did not know whether they had. The other 22% say they just have not planned their retirement income at all. Interestingly, the current discussions around inflation has impacted peoples approach to retirement with 43% of those who are working full-time planning to factor this challenge in – up from 39% of those who have already retired.

Retirement spending power

The current challenging economic situation is also encouraging a more thoughtful approach to retirement with only 15% of the employed confessing to a lack of retirement planning compared to 23% of those who are already retired.

Among those who say they have planned for the impact of inflation on their retirement spending power more than a third (34%) say they can rely on the State Pension keeping pace with rising prices while 33% believe their company pension will rise in line with inflation.

Inflation rose sharply

As well as looking to the State Pension and company pensions, the 30% of those who have prepared for inflation say they have anticipated the need for their income to rise each year and have approached their savings accordingly.

Around a quarter (26%) say they have considered how much spending they might need to cut if inflation rose sharply. The main reason for failing to take account of inflation was its unpredictability – 31% say they did nothing because they could not forecast it – while 30% say they had been caught out by the recent increase in inflation after years of stability.

Explore different options

The importance of future proofing your finances is clearly moving up the agenda and when you compare retirees with those over-55s who are still working, you can see that the recent inflation shock has encouraged people to plan more carefully.

No one wants to find that as they age, they need to cut back more and more just to make ends meet. While saving as much as possible for retirement and careful planning is clearly important, it is also vital to consider all your assets and to explore different options, whether it is boosting your tax-free savings, downsizing or accessing your housing equity.

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[1] Key Advice 18 May 2022.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR MORTGAGE IS SECURED ON YOUR HOME, WHICH YOU COULD LOSE IF YOU DO NOT KEEP UP YOUR MORTGAGE PAYMENTS.

EQUITY RELEASE MAY INVOLVE A HOME REVERSION PLAN OR LIFETIME MORTGAGE WHICH IS SECURED AGAINST YOUR PROPERTY. TO UNDERSTAND THE FEATURES AND RISKS, ASK FOR A PERSONALISED ILLUSTRATION.

EQUITY RELEASE REQUIRES PAYING OFF ANY OUTSTANDING MORTGAGE. EQUITY RELEASED, PLUS ACCRUED INTEREST, TO BE REPAID UPON DEATH OR MOVING INTO LONG-TERM CARE. EQUITY RELEASE WILL AFFECT THE AMOUNT OF INHERITANCE YOU CAN LEAVE AND MAY AFFECT YOUR ENTITLEMENT TO MEANS-TESTED BENEFITS NOW OR IN THE FUTURE.

CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT.

IF YOU ARE IN ANY DOUBT, SEEK PROFESSIONAL FINANCIAL ADVICE.