The decision by Chancellor Jeremy Hunt to abolish the lifetime allowance on pension pots is an important one.
Within a few minutes of the Chancellor sitting down after his Budget speech, we received several enquiries from clients wanting to know the implications of the announcement.
The lifetime allowance limit was first introduced by Chancellor Gordon Brown in 2006 with a cap of £1.5million before increasing to £1.8million in 2012 under the Coalition Government and then subsequently reducing to the current £1.073million level, thereby significantly increasing the number of people impacted.
The abolition of the lifetime allowance in the Budget was accompanied by the announcement that the annual allowance would rise by £20,000 to £60,000.
It wasn’t all good news though. Hidden in the small print was the fact that people will now only be able to take 25% tax free cash from their pension subject to a maximum of £268,275. This means that irrespective of whether someone has a bigger pension pot than the previous lifetime allowance, this is the most they will be able to take out.
The announcement regarding the scrapping of the lifetime allowance was followed in short order by Labour saying that they would reinstate it and instead introduce a targeted scheme aimed directly at doctors.
In the light of this, our recommendation would be that any action should be taken sooner rather than later and certainly well ahead of the next General Election.
Many of the other announcements in the Budget were confirmation of what we already knew was coming. They included the capital gains tax exemption reducing from £12,300 to £6,000 in April 2023 and then to £3,000 in April 2024, while the dividend tax threshold will lower from £2,000 to £1,000 and then £500. Meanwhile, there was no change to the decision to increase corporation tax from 19% to 25%.
As the tax take continues to go up, our team will continue to advise our clients on the best ways to prepare for these changes in line with their longer-term financial planning requirements.
One announcement which did please many clients (and grandparents), was the extension of free childcare support for every child over the age of nine months.
Elsewhere in the Budget, the Chancellor shared his economic outlook with the heartening news that inflation is forecast to fall by the end of the year to 2.9% from the current level of 10.7%. While no one can yet be sure if this will play out exactly as he hopes, it feels about right now that we have experienced the inflationary shock.
Similarly, while the Office for Budget Responsibility (OBR) is only predicting that the economy will grow by 1.8% in 2024 and 2.5% in 2025, this was accompanied by the expectation that the UK will avoid slipping into recession.
Away from the Budget, the markets have experienced a choppy week on the back of the Silicon Valley Bank failure, providing a stark reminder that the financial crisis of 2008 was not actually that long ago. However, with far better controls and consumer protection in place, the risk of contagion this time around is remote.
As ever, if you have any questions regarding the Budget or any other matters, please get in touch with a member of the team.
Budget 2023: Lifetime pension allowance scrapped
/0 Comments/in News /by EdwardLambThe decision by Chancellor Jeremy Hunt to abolish the lifetime allowance on pension pots is an important one.
Within a few minutes of the Chancellor sitting down after his Budget speech, we received several enquiries from clients wanting to know the implications of the announcement.
The lifetime allowance limit was first introduced by Chancellor Gordon Brown in 2006 with a cap of £1.5million before increasing to £1.8million in 2012 under the Coalition Government and then subsequently reducing to the current £1.073million level, thereby significantly increasing the number of people impacted.
The abolition of the lifetime allowance in the Budget was accompanied by the announcement that the annual allowance would rise by £20,000 to £60,000.
It wasn’t all good news though. Hidden in the small print was the fact that people will now only be able to take 25% tax free cash from their pension subject to a maximum of £268,275. This means that irrespective of whether someone has a bigger pension pot than the previous lifetime allowance, this is the most they will be able to take out.
The announcement regarding the scrapping of the lifetime allowance was followed in short order by Labour saying that they would reinstate it and instead introduce a targeted scheme aimed directly at doctors.
In the light of this, our recommendation would be that any action should be taken sooner rather than later and certainly well ahead of the next General Election.
Many of the other announcements in the Budget were confirmation of what we already knew was coming. They included the capital gains tax exemption reducing from £12,300 to £6,000 in April 2023 and then to £3,000 in April 2024, while the dividend tax threshold will lower from £2,000 to £1,000 and then £500. Meanwhile, there was no change to the decision to increase corporation tax from 19% to 25%.
As the tax take continues to go up, our team will continue to advise our clients on the best ways to prepare for these changes in line with their longer-term financial planning requirements.
One announcement which did please many clients (and grandparents), was the extension of free childcare support for every child over the age of nine months.
Elsewhere in the Budget, the Chancellor shared his economic outlook with the heartening news that inflation is forecast to fall by the end of the year to 2.9% from the current level of 10.7%. While no one can yet be sure if this will play out exactly as he hopes, it feels about right now that we have experienced the inflationary shock.
Similarly, while the Office for Budget Responsibility (OBR) is only predicting that the economy will grow by 1.8% in 2024 and 2.5% in 2025, this was accompanied by the expectation that the UK will avoid slipping into recession.
Away from the Budget, the markets have experienced a choppy week on the back of the Silicon Valley Bank failure, providing a stark reminder that the financial crisis of 2008 was not actually that long ago. However, with far better controls and consumer protection in place, the risk of contagion this time around is remote.
As ever, if you have any questions regarding the Budget or any other matters, please get in touch with a member of the team.
Economic outlook brighter at start of 2023
/0 Comments/in News /by EdwardLambWe hope your 2023 has got off to a good start.
The early data suggests that the economic situation continues to look brighter than it did for much of last year.
The UK inflation rate eased in December from 10.7% to 10.5% with lower prices for petrol and clothing pushing down the headline rate.
While most experts expect that inflation will continue to fall to a level nearer 5% by the end of 2023, the immediate continued upward pressure means that the financial markets anticipate the Bank of England raising its main interest rate to 4% later this week.
There was also some positive news coming out of the United States where the country’s economy expanded by 2.9% from October to December, ending 2022 with momentum despite the pressure of high interest rates and the ongoing expectation of a recession.
The financial markets have similarly been kinder of late, although you would typically expect to see a bounce back in this area ahead of any sustained economic recovery.
In terms of the UK economy, the next important date in the diary is Chancellor Jeremy Hunt’s Budget which will take place on March 15 and will be accompanied by a forecast from the Office for Budget Responsibility.
The expectation is that Hunt will deliver a slimmed down Budget after the drama leading up to November’s Autumn Statement and the ensuing tax rises and spending cuts in a bid for stability and reassurance.
The economic climate, while showing some small signs of moving in the right direction, provides the Chancellor with few if any opportunities to pull rabbits out of the hat.
The Government will instead be hoping to buy itself more time to demonstrate a sustained economic recovery before it hopes to be able to offer some tax giveaways in the 2024 Budget which is likely to come in the final stages of the run-up to the next General Election.
In terms of immediate client opportunities as we head towards the end of the financial year, please do consider pension contributions and ISA allowances and any capital gains that can be realised before the tax allowance is cut from the current level of £12,300 to £6,000 in April 2023 and £3,000 from April 2024.
As ever, please do get in touch with the team at Phillip Bates & Co Financial Services if you would like to speak to us about these or any other matters. Similarly, as many clients know, we are always happy to arrange meetings with any family members or friends who would like to take some financial guidance.
Season’s Greetings from Phillip Bates & Co Financial Services
/0 Comments/in News /by EdwardLambAs we approach the end of 2022, we look back on what has undoubtedly been a turbulent year economically around the world. For those of us in the UK, it has also been one of the more extraordinary years politically with three different Prime Ministers.
There are, however, some tentative signs that inflation may have peaked with figures last week showing an easing to 10.7% and we can only hope that this downward trend continues as we move into 2023.
Global stocks also rose following similar news out of the United States with annual consumer price growth slowing to 7.1%, compared to 7.7% the previous month.
These are positive signs after what has been a difficult year for many, something that is reflected in the economy and investment values.
But while we hope to see continuing downward pressure on inflation, it is unlikely there will be a sudden bounce back in fund values.
However, while there will likely be further volatility, if inflation figures continue to fall, the levels of volatility should reduce with the resulting uplift in values.
As we are always reminding our clients, your portfolios are about the long-term, about ensuring that you can make the financial choices you want to for you and your loved ones.
We look forward to continuing to provide all our clients with the best possible advice and support in 2023.
In the meantime, on behalf of all the team at Phillip Bates & Co Financial Services, I would like to wish you and your families a Happy Christmas and a Prosperous New Year.
Our office will be closed between 23rd December and 3rd January.
Autumn Statement: Chancellor continues message of “sensible stewardship”
/0 Comments/in News /by EdwardLambLike all smart politicians, Chancellor Jeremy Hunt talked up the need for Britons to “face into the storm” ahead of presenting his Autumn Statement.
But while some sections of society will have to play their part by paying more in taxes, the statement was nowhere near as painful as some commentators had been forecasting it might be.
A lot of the tougher decisions were delayed with scheduled public spending being maintained until 2025 and increases for the NHS and schools. Defence spending is maintained at 2% of national income.
State pension payments and means-tested and disability benefits will increase by 10.1% in line with inflation. The much talked about pensions “triple lock” is therefore protected.
There was, of course, some pain meted out with the tax-free allowance for dividends being reduced from £2,000 to £1,000 next year and £500 the year after. This is a body blow to business owners working hard to weather the current challenging conditions and will raise the question as to whether dividends rather than salary remains the most tax-efficient route.
Capital gains tax allowance will be cut from the current level of £12,300 to £6,000 next year and £3,000 from April 2024.
As you would expect, we will be working closely with clients who are impacted by the above reductions. In the case of CGT, it will be important to use allowances this year if appropriate and, going forward, we will consider alternative measures that will assist with tax planning.
While, the coming winter will undoubtedly be tough for many, particularly those living on a tight budget, the approach taken by the Chancellor in his statement will, one hopes, ensure that any recession is shorter-lived than had perhaps been previously forecast.
The Office for Budget Responsibility (OBR) said the UK economy would shrink by 2% over the totality of a recession, which started earlier this year and is expected to last just over 12 months.
Both inflation and interest rates look like they may be topping out before the end of this year.
There was a generally benign reaction from the markets to the Chancellor’s 53-minute statement, providing further evidence that they are reassured by the steady and sensible approach now in place, compared to the chaotic few weeks of early Autumn.
What is less clear is the longer-term plan for growth outside of a couple of eye-catching announcements around infrastructure and the go-ahead for the Sizewell C nuclear power station.
Depending on how the next couple of years go, this may not be the concern of a Conservative government with a General Election having to be held by January 2025 at the latest.
For our clients, the reaction to the Chancellor’s Autumn Statement should provide reassurance, but it is important to remember that investments are not focussed solely on the UK, but across the world.
Market confidence returns after chaotic few weeks
/0 Comments/in News /by EdwardLambThe financial markets may be complex in many ways, but in other ways they are very simple.
After a turbulent few weeks, the appointment of a new Chancellor in Jeremy Hunt and the subsequent instalment of a new Prime Minister in Rishi Sunak has given the markets the one thing they crave more than anything else – competence.
If the rest of the world is going to buy the UK’s debt, do they have the confidence that they are going to get their money back? Like any lender, the greater the uncertainty, the higher price they are going to want for the debt they are carrying.
Clearly, there is still a long way to go to restore full economic confidence and trust, but as many commentators have said in recent days, at least it feels like the “grown-ups” are back in charge.
One of my own clients viewed the events of the last six weeks as a “bad episode of The Apprentice”.
The announcement that the Autumn Statement has been moved back to November 17 from the rather less auspicious Halloween also makes total sense.
The bond markets have started to stabilise and the short-term volatility that we witnessed has been corrected. Bond prices rose sharply as soon as it looked likely that Mr Sunak was on course to become PM.
Three weeks of further stability and calmer market conditions should mean the Government will not have to pay as much interest on money it borrows because it is not considered as much of a risk.
Official projections suggest that the government’s bill for the interest on its debt could be up to £10bn lower than feared just a few weeks ago.
This could potentially change how much it needs to cut spending and raise taxes by to balance the books.
Our attention will turn next to the Autumn Statement on November 17, now upgraded from a Fiscal Statement, with the likelihood of wider tax and spending decisions being unveiled.
While I don’t anticipate changes to income tax, it is possible that pension tax relief could be in the Chancellor’s cross hairs.
We will, of course, review the Chancellor’s Autumn Statement in our next newsletter and any implications for clients.
Despite everything that we have seen in recent weeks, it is important to remember that investing in the financial markets is turbulent with longer term growth requiring a level of risk.
In the last five years – and despite a financial crisis, pandemic, energy emergency and war in Ukraine – portfolios have, on average, made between 20-25% during this period.
This, hopefully, reinforces the importance of the long-term and diversified planning that we undertake on behalf of our clients.
Kwarteng rolls the dice with UK’s economy
/0 Comments/in News /by EdwardLambThe Government may not have called Friday’s ‘fiscal event’ a Budget, but it certainly packed more of a punch than many Budgets put together.
In just over 25 minutes on his feet, new Chancellor Kwasi Kwarteng took the biggest economic and political gamble in 50 years – the last time there was a tax cutting event of a similar scale.
The key measures announced were:
The slew of tax-cutting and tax cancelling measures outlined by the Chancellor follows the announcement a few days earlier of the energy package for consumers and businesses which could end up costing the taxpayer in the region of £150billion.
While some of the Chancellor’s actions, such as those on infrastructure and housing, make sense, there is a lot that has left many people at best baffled and at worst seriously troubled. Measures such as reducing the 45% top rate of tax and the removal of the bankers’ bonus cap do not seem to be those of a responsible government with a steady hand on the tiller.
The consequence of Friday’s ‘fiscal event’ is that interest rates will continue to be hiked up beyond the 0.5% rise announced by the Bank of England on Thursday.
It is likely that a further rise of 0.5-0.75% can be expected over the coming months. For many households the resulting increased mortgage payments will take away any gains from other measures contained in the Chancellor’s statement.
Only time will tell whether the decision to embark on a tax-cutting spree has worked. With the next General Election two years away at most, it does feel like new Prime Minister Liz Truss and her Cabinet have decided that a bold gamble of such a scale gives them the best shot at re-election.
Should the gamble fail, and Labour wins the next election, the party’s leader Keir Starmer has already started to make clear that many of the measures would be overturned.
The initial reaction of the markets to the Chancellor’s statement was not favourable with sterling falling to its lowest level against the US dollar in 37 years. Bonds and equities also fell sharply.
Interviews over the weekend suggest that Liz Truss and Kwasi Kwarteng remain emboldened and plan to continue pursuing an aggressive tax-cutting agenda over the coming months.
The great concern, though, is that the UK is now set on an irreversible path of ‘boom and bust’.
We must all hope that this proves not to be the case, but what the events of the last few days do demonstrate is the importance of our clients having sensible, balanced, long-term financial plans with a global rather than UK-centric approach.
Testing times for UK & global economy
/0 Comments/in News /by EdwardLambIn any other week, the Government’s much trailed announcement on energy prices would have dominated the news headlines.
However, for entirely understandable reasons, Prime Minister Liz Truss’s package of measures – which could cost up to £150billion – almost slipped under the radar.
A typical household energy bill will be capped at £2,500 annually until 2024, while businesses will also be supported with a six-month price cap.
As the new PM observed: “We are facing a global energy crisis, and there are no cost-free options.”
Inevitably, the markets reacted strongly as they like few things more than a boost to money supply.
The fear remains that such a bold move will further stoke inflationary pressures. The potential size of the energy bail-out – more than was spent on the furlough scheme during the Covid-19 pandemic – will have serious ramifications for the national debt, money supply and the future economic landscape.
Inflation continues to run higher than expected, currently standing at 10.1%, although it is to be hoped that this will peak before the end of the year.
The new Chancellor, Kwasi Kwarteng, has reiterated his “full support for the independent Bank of England and their mission to control inflation, which is central to tackling cost of living challenges”.
The Chancellor also confirmed that he would meet twice a week with Andrew Bailey, Governor of the Bank of England, from now on to discuss the rising cost of living.
The death of The Queen caused the Bank to postpone the Bank’s Monetary Policy Committee’s decision regarding interest rates until September 22 with some economists suggesting the rate could rise to 2.25% – the highest level since December 2008.
Further rises could be damaging for people who are not sufficiently prepared, although the hope must be that inflation starts to come under control which, in turn, would reduce the need for further hikes.
The Government is expected to lay out its economic course with a mini-Budget sometime in the next few weeks. This should give us guidance as to the intended direction of travel between now and the next General Election, due in 2024.
Her Majesty Queen Elizabeth II
Along with the rest of the nation, we were deeply saddened by the passing of The Queen.
Our thoughts are with the Royal Family as they grieve the loss of our longest-serving monarch.
Our office will be closed on Monday, September 19th – which has been declared a Bank Holiday – reopening as usual on Tuesday 20th.
New PM will need to hit the ground running
/0 Comments/in News /by EdwardLambThe sooner the Conservative leadership race is concluded, the better.
In the current economic climate, the last thing the UK needs is a caretaker Prime Minister managing the shop, and with no authority to take decisions on the pressing issues of the day, most notably the continuing cost of living and energy crisis.
We now know that the new PM will not take office until after September 5th – seven weeks of further delay UK consumers and businesses can ill afford.
In the United States, there is always a lot of emphasis placed on the ‘First 100 Days’ of a new President’s term in office, but whoever the new PM is in the UK will also have to hit the ground running and ensure that a robust economic plan is ready to be implemented as quickly as possible.
This may even necessitate an emergency Budget, sooner than the planned Budget scheduled for November.
Looking at the wider global picture, since my last newsletter, the markets have largely stabilised. We must remain watchful regarding inflationary pressures, but I am hopeful that we are nearing the peak globally. There also continue to be supply issues which have not been fully resolved.
The sell-off of pretty much anything other than so-called ‘old school’ stocks such as utilities and banks has ended and there is now a more balanced economic picture.
Interestingly, the S&P 500 Index in the United States has just endured its worst six months on record, but a closer look at its performance over the last 12 months shows a 3% uplift – something most investors would be comfortable with.
So, while there is reason for cautious optimism, the continuing uncertainties in the UK and worldwide reinforce the importance of having a long-term, well-balanced and, crucially, diversified portfolio, something that is integral to the advice and services provided to our clients.
Best Wishes to Laura
We would like to take this opportunity to send our best wishes to our paraplanner colleague Laura Rees who is temporarily leaving us to have a baby.
We are also delighted that our new administrator Chris Archer is settling in well and getting to know our clients.
Finally, as we bask in a rare UK heatwave, on behalf of everyone at Phillip Bates & Co Financial Services, I would like to wish you all a lovely summer.
Can you help mental health charity Chapter?
/0 Comments/in News /by EdwardLambLast week was Mental Health Awareness Week and one of our clients, Lee Mooney, has recently taken on a Trustee role at a local mental health charity.
One in four people will experience a mental health problem in the UK every year. We all deserve support when in need, but we know how difficult it can be for people to get it.
Chapter is a local charity dedicated to improving the lives of people experiencing mental ill-health in West Cheshire, Wirral, and the surrounding areas. We provide a pathway of support that gives hope, the opportunity to make connections, and vital new skills.
We support individuals with a range of mental health needs, from a diagnosis of serious mental illness (e.g., schizophrenia or bipolar disorder) to people experiencing mild or moderate mental ill-health. Our work includes services for individuals and community spaces such as our facility at The Haven (featured on BBC Radio Merseyside this week).
Chapter also offers professional mental health training for local groups and businesses including accredited Mental Health First Aid. It is often difficult to identify mental ill-health in the workplace and challenging for managers to provide the support needed. Chapter can design courses to suit your business need and help to ensure the right response is available to you to support your staff and protect your business.
If you would like to find out more about how Chapter can help your business please contact:
Lee Mooney, Trustee – lee.mooney@chaptermenmtalhealth.org
Jolene Weaver, CEO – Jolene.weaver@chaptermenmtalhealth.org
Supporters can also fundraise for Chapter through our JustGiving page. You can find out more about the work we do at chaptermentalhealth.org
Crypto: Has the bubble burst?
/0 Comments/in News /by EdwardLambIt has been an interesting few days for followers of the cryptocurrency market with panic selling as the market took a battering.
At one point, the Bitcoin digital currency had fallen below $26,000 from a peak of more than $69,000. Meanwhile, the Terra [LUNA] cryptocurrency fell by more than 99%, wiping out the fortunes of many crypto investors.
Terra, which was ranked among the ten most valuable cryptocurrencies, dropped below $1 at one stage last week, having peaked close to $120 in the previous month.
Although we are not permitted to recommend cryptocurrencies to our clients, it is something we are often asked about.
We prefer to focus on the real economy where stocks may be overvalued but are never worthless – unlike the world of cryptocurrency.