The cost of living is rising. Reviewing your finances now is crucial for understanding what effect inflation could have on your lifestyle and long-term plans.

Inflation was at an almost 40-year high. In the 12 months to August 2022, it was 9.9%.

There are several factors contributing to rising inflation, including the conflict in Ukraine, which has disrupted energy and food supplies.

Rising inflation means now is the ideal time to review your budget

Keeping track of your finances during the cost of living crisis is crucial.

In the short term, you should review your budget. Can your budget absorb the higher costs or do you need to make lifestyle changes?

The Bank of England expects inflation to peak at around 13%. It’s also said it doesn’t expect the rate to fall to its target of 2% for several years.

So, you should look at what that means for you in the coming years. Will rising energy prices mean you need to be more mindful of energy use or cut back expenses in other areas?

While the headline inflation figure can give you an idea of how prices are changing, your personal inflation rate may be very different. If you commute long distances, for instance, the steep rise in fuel costs may mean your outgoings rise more than you expect.

Going through your budget and calculating how your regular costs have changed in the last year can help you better manage your finances.

In some cases, you may decide to draw on savings or other assets to bridge a gap if your expenses rise. You should ensure this is sustainable.

The steps you take could affect your long-term plans

While it’s important to focus on how the cost of living crisis is affecting your finances now, don’t forget to consider the long-term effects too.

Decisions you make now could affect your income and financial security for years to come.

If you’re using assets to create an income, such as your pension, you need to be aware of how increased withdrawals may affect you. Could taking a higher income from your pension now to cover costs mean that you deplete your savings faster than you expect? If so, it could mean you face an income shortfall later in life.

Research also suggests that some people are cutting back outgoings that could improve long-term financial security.

According to Canada Life, 5% of adults have already stopped contributing to their workplace pension due to budget pressures. A further 6% are actively thinking about pausing their pension contributions.

While pausing contributions for a few months may seem like it will have little effect on your retirement, it can be larger than you think. The power of compounding means that pausing pension contributions for just a year could reduce the value of your pension at retirement by 4%.

It’s not just stopping pension contributions that could affect your long-term plans. Things like reducing how much you add to your savings account or investment portfolio could affect whether you can reach your goals in the future, whether that’s to support children through university or retire early.

Contact us to review your finances

Amid the current economic uncertainty, reviewing your financial plan can give you peace of mind and confidence. We’ll help you understand how your current budget has been affected and the steps you can take now to create long-term financial security.

Please contact us to arrange a meeting to discuss your goals and the effect the cost of living crisis could have.

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

When you start thinking about how you’ll create an income in retirement, it’s probably your pension that comes to mind. Yet, if your estate could be liable for Inheritance Tax (IHT), it could make sense to use other assets first.

IHT is paid after you pass away if the value of all your assets exceeds certain thresholds. It can significantly reduce how much you leave behind for loved ones. However, there are often steps you can take to reduce a potential IHT bill, including assessing how you’ll use assets in retirement.

Inheritance Tax receipts reached a record high in June 2022

According to HMRC, IHT receipts between April 2022 and June 2022 were £1.8 billion. The sum is £0.3 billion higher than the same period last year and IHT receipts reached a record high in June 2022 due to high-value payments.

HMRC expects IHT payments to continue rising thanks to inflation and a freeze on thresholds.

The value of some of your assets, such as property or an investment portfolio, may be rising. Yet, the thresholds for paying IHT are frozen until 2026. As a result, more families are expected to pay IHT if they don’t take steps to reduce their tax liability.

There are two key allowances to consider if you’re reviewing if your estate could be liable for IHT:

1. Nil-rate band: For the 2022/23 tax year, the nil-rate band is £325,000. If the value of all your assets is below this threshold, IHT will not be due.
2. Residence nil-rate band: If you leave certain properties, including your main home, to your children or grandchildren, you can also take advantage of the residence nil-rate band. For the 2022/23 tax year, it is up to £175,000.

If you maximise both allowances, you can pass on up to £500,000 before IHT is due.

IHT is not due when you’re leaving assets to your spouse or civil partner, and you can also pass on unused allowances. So, if you’re planning as a couple, you may be able to leave up to £1 million without paying IHT.

The standard IHT rate is 40%. If it’s something your estate could be liable for, it’s important to be proactive to ensure you pass on as much as possible to your loved ones.

While you may consider gifting assets during your lifetime or making charitable donations, one potential option you may have overlooked is leaving your pension untouched.

For Inheritance Tax purposes, your pension is outside of your estate

Your pension is likely to be one of the largest assets you have. In fact, according to a report from the Office for National Statistics, private pension wealth represents a greater share of household wealth than property.

Crucially, the money held in your pension is usually considered outside of your estate for IHT purposes.

So, while your first instinct may be to access your pension to create an income in retirement, it could make financial sense to deplete other assets first and leave your pension for your loved ones.

The beneficiary of the pension may need to pay Income Tax at their nominal rate when they access the savings. The rate will depend on the age you pass away and how they access it, but it could be lower than the IHT rate.

If you’re concerned about IHT and leaving your pension to loved ones is something you’re considering, it’s important to review your long-term financial plan. You should understand how you’ll create an income in retirement that allows you to meet your goals, and what other steps to reduce IHT may be appropriate.

You will need to complete an expression of wishes to pass on your pension

Your pension isn’t covered by your will. The pension scheme administrator has the final say over who receives your pension when you pass away.

You can use an expression of wishes to tell the administrator who you would like your beneficiaries to be. It’s important you complete this. If you don’t, your pension may not be inherited by the person you want.

You will need to complete an expression of wishes for each pension you hold.

Creating a long-term financial plan that suits you

When you plan your retirement or pass on wealth, it’s normal to have lots of questions. We’re here to help you answer them and provide advice.

Whether you’d like to understand how you can mitigate IHT or how to use your assets to create financial security in retirement, please contact us to discuss your needs.

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

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

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). 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. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts. 

If you’re planning your retirement and aren’t sure where to start, you may have come across “rules” to follow. While these could provide a useful baseline, some of them are outdated and, as they don’t consider your circumstances, may not be right for you.

Here are three outdated pension rules you may have come across, and why they may no longer be suitable for modern retirees.

1. Give up work on a set retirement date

Retirement lifestyles have changed.

In the past, it was commonplace to reach your retirement date and give up work completely. For many reasons, modern retirees are embracing a more flexible approach.

According to a report from abrdn, two-thirds of people who plan to retire in 2022 intend to continue working in some way. Having a transitional phase comes in many forms, from working in a part-time role to volunteering or setting up a business.

One of the key benefits of working in retirement is that it could boost your income while striking the work-life balance you want. You may want to continue working for other reasons, whether you want some structure to your routine or you enjoy the social aspect of work.

As you near your retirement date, you should think about the kind of lifestyle you’d like and how it might change over the years.

If you intend to work past the traditional retirement date, you may need to consider how it will affect your tax liability and so on. That’s why a financial plan tailored to your choices can help you understand how to get the most out of your income throughout your life.

2. Withdraw 4% of your pension for a sustainable income

If you have a defined contribution (DC) pension, one of the retirement challenges you may face is deciding how to access your pension. For example, you can choose to take a flexible income, although it will be your responsibility to ensure it lasts for the rest of your life.

Withdraw too much and you could run out of money or need to change your lifestyle later in life. Alternatively, being too frugal could mean you miss out on things you want to experience. So, striking the right balance is important.

You may have heard of the 4% rule, where you withdraw 4% of your pension each year to achieve a sustainable income.

However, this rule may not suit modern retirees for two key reasons.

First, longer life expectancy means many people are spending longer in retirement and so pensions will need to stretch further.

Second, investment returns will affect the value of your pension. A period of lower returns could mean you need to reduce your income.

Data from the Financial Conduct Authority indicates that some retirees could run out of money by taking unsustainable sums from their pensions. Some are taking more than 8% of their pension in a year. It’s crucial you know how withdrawals will affect your long-term security.

If you prefer, you can purchase an annuity with a DC pension. This could provide you with a guaranteed income for the rest of your life. Please contact us to discuss the pros and cons of the various pension options.

3. Calculating how much to contribute to your pension

Knowing how much you need to contribute to a pension to achieve your retirement goals can be difficult.

A common rule is to divide the age you start saving for retirement by two and deposit this percentage of your income. So, if you start adding to a pension when you’re 20, you’d need to add 10% of your income throughout your career. Put off building up your pension until you are 30, and it rises to 15%.

This rule recognises the powerful effects of compounding when you invest over the long term. However, it doesn’t take into account your retirement expectations. How much you need to save for your retirement will depend on the lifestyle you want to lead.

Once again, this rule could mean you don’t save enough once you consider how long your retirement could be.

Do away with “rules” and create a retirement plan that suits you

While these rules can be useful for getting a general idea of how to retire, they don’t consider your goals and circumstances. A financial plan that’s made just for you can help ensure you’re on track for the retirement you want to enjoy.

Please contact us to arrange a meeting to discuss your retirement plans.

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

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The 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. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts. 

While dealing with the loss of a loved one, organising their affairs can be overwhelming.

You may also need to make decisions and provide information to authorities and services. This guide is designed to help you understand what action you may need to take and what you need to consider, from whether Inheritance Tax is due to how the probate process works.

This guide can help you answer questions like:

• What steps need to be taken immediately after a death?
• How does the probate process work?
• What happens if the deceased hasn’t written a will?
• What steps do you need to take if you’re an executor of a will?
• Do you need to consider Inheritance Tax?
• And more…

Download “Your guide to organising affairs after a loved one passes away” to learn more.

If you have questions about the guide, how to deal with the affairs of a loved one, or the steps you can take to make managing your affairs easier, please contact us.

The ongoing war in Ukraine, rising interest rates and soaring inflation could be pushing some economies towards recession in the coming months.

This uncertainty has caused real volatility in global stock markets. Indeed, 2022 was the worst first half of the year for developed market equities in more than 50 years.

As an investor, you may be worried about the effect the current situation could have on your portfolio and long-term plans. However, it’s important to remember that investing is a long-term endeavour, and short-term volatility is something that is to be expected.

If your plans haven’t changed, it’s unlikely your financial plan will need to change either.

If you have any questions, please contact us.

UK

The war in Ukraine is significantly affecting fuel, energy, and food prices, which is continuing to place pressure on both households and businesses. With a further significant rise to the energy price cap coming in the autumn, millions of households are facing an unprecedented squeeze.

Inflation reached yet another 40-year high in the 12 months to July 2022. The rate of 10.1% is slightly higher than the 9.4% recorded the previous month.

Fears of a recession subsided slightly with the unexpected news that GDP in the UK grew by 0.5% in May 2022, after a decline of 0.2% in April.

However, although the UK economy is performing slightly stronger than the eurozone or the US, the latest monthly survey from the S&P Global/Chartered Institute of Procurement and Supply (CIPS) showed both the UK services and manufacturing sectors are struggling to cope with rising cost of living pressures.

The CBI’s latest ‘Industrial Trends’ survey found that output volumes and new orders in the three months to July both increased at the slowest pace since April 2021.

Political issues also created uncertainty in the UK, after Boris Johnson resigned as prime minister, kickstarting a Conservative leadership contest that will run until September 2022.

A series of strikes across the UK are also affecting business operations. Two days of further strike action on UK railways in July will be followed by further walkouts in August, while strikes involving Post Office workers, and airport staff have also caused disruption. Issues at border control have also caused significant delays to travellers heading to Europe through Britain’s ports.

Overall, the UK FTSE All-Share index fell by 5% in the three months to the end of June 2022.

Europe

Ongoing food, energy, and fuel supply issues exacerbated by the war in Ukraine also hit the eurozone economy in July.

In response, the European Central Bank (ECB) raised interest rates for the first time since 2011 to tackle eurozone inflation that has increased to 8.6%.

In a surprise move, the ECB raised its base rate by 0.5 percentage points, despite economists predicting a smaller 0.25-point rise.

The ECB’s president, Christine Lagarde, said: “We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices, and pipeline pressures in the pricing chain.”

Confidence in Europe’s leading economies is low, as soaring energy price and fears of a gas shortage drive down confidence.

Research institute IFO has reported that German business morale fell in July to the lowest level in over two years. IFO’s business climate index fell to 88.6, from June’s 92.2 – the worst reading since the first Covid-19 lockdown. It puts Europe’s largest economy on the threshold of recession.

European shares, as measured by the MSCI Europe ex-UK index, fell by 10% in the second quarter of 2022.

US

Separate Purchasing Manager’s Index (PMI) surveys have pointed to the US already being in recession.

America’s composite PMI fell from 52.3 to 47.5 in July, its lowest level in 26 months. The rate of decline in manufacturing and services was the steepest since the beginning of the Covid-19 pandemic, due to falling demand.

As in the UK, the US inflation rate soared to a 40-year high, reaching 9.1% in the year to June 2022.

Despite many pessimistic predictions, the US showed robust job growth in June, defying expectations of a slowdown and keeping the unemployment rate at just 3.6%. Meanwhile, retail spending, a key indicator of economic health, rose 1% in June – although some of that increase can be attributed to rising prices.

US shares have rebounded in July after a difficult few months. After falling into a bear market earlier this year, the S&P 500 index is currently up more than 8% from its 2022 low and, by the end of July, was trading at its highest level since early June.

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

The value of your investment 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.

Sleep might be something you don’t give much thought to, but a good night’s sleep is vital for your wellbeing.

If sleep is something you struggle with, you’re not alone.

According to a YouGov poll, 1 in 8 Brits says they have trouble falling asleep every night. And around a quarter of people say they take sleeping tablets to help them drift off. What’s more, 68% said they often still feel tired in the morning.

So, what does science tell us about sleep?

Your internal “body clock” regulates your sleep cycle

The 24-hour cycle of your body clock – known as the “circadian rhythm” – regulates when you feel tired.

Scientists believe feeling tired could be linked to adenosine, an organic compound that’s produced in the brain. Your levels of adenosine gradually increase throughout the day. Your brain then breaks down this compound while you sleep.

Light also plays a role in your body clock by affecting the hormones your body releases. In the evening, your body will release melatonin, which can cause drowsiness. In the morning, by contrast, your body releases the hormone cortisol, which can help you feel more alert.

REM sleep is linked to memory consolidation

There are four stages of sleep that you will repeat cyclically throughout the night. The final stage is called “REM”, or rapid eye movement sleep.

As the name suggests, your eyes move rapidly back and forth during REM sleep. It’s during this stage that you’ll often dream and your arms and legs will become paralysed – it’s thought this is to prevent you from physically acting out your dreams.

What’s important about REM sleep is that it’s linked to memory consolidation. This means that your recently learned experiences become long-term memories.

REM can explain why remembering can become more difficult as you age. As you get older, the duration of REM decreases.

Research from Stanford University in 2011 found a link between interrupted sleep and impaired memory in mice. The researchers noted that uninterrupted sleep, even if it’s just a small amount, is crucial for memory consolidation.

Sleep is vital for brain plasticity

Brain plasticity, or neuroplasticity, refers to the brain’s ability to change and adapt as a result of experience. It’s thought that sleep is vital for this process by providing a restorative period.

Without brain plasticity, you may not be able to pick up new skills or use your experiences to make informed choices in the future.

Sleep during adolescence can affect social interactions

Parents of teenagers will be well aware that they need more sleep than adults.

Interestingly, research reported by the Human Frontier Science Program suggests uninterrupted sleep in adolescence is vital for healthy social interactions.

The researchers carried out the study on mice. The results indicate that for generally healthy people, good sleep during adolescence may affect the quality of their social life in the long term.

So, next time you’re trying to encourage a teenager to get up early, leaving them to sleep in might not be such a bad idea.

But there’s still a lot that scientists don’t know

Despite the research, there’s still a lot that scientists don’t know about sleep. It’s something all animals do. Yet, if you ask scientists why we sleep, they aren’t exactly sure.

One hypothesis is that sleep serves as a type of cleaning process. Some researchers believe your body removes waste products from brain cells when you sleep, which can improve your health.

Whatever the reason for sleep, studies have consistently shown that not getting enough can affect many aspects of your physical and mental health.

3 excellent books about sleep

If you’re keen to learn more about the science of sleep and the crucial role it plays in your life, there are plenty of books on the topic to delve into, including these three:

1. Why We Sleep by Matthew Walker

This book answers some of the most asked questions about sleep, such as what happens during REM? Or how does caffeine affect sleep? The book does an excellent job of making complex scientific evidence accessible to everyone.

2. The Promise of Sleep by William Dement

If you want more reasons why you should make sure you get a good night’s sleep, Dement has plenty. He explores the consequences of not getting enough sleep, from fatigue-related accidents to the psychological disadvantages.

3. Snooze by Michael McGirr

As well as looking at why we sleep, Snooze explores the sleep patterns of some of the greatest minds in history, from Aristotle to Thomas Edison.