Client trends March 2021:
Chill winds from Budget freezes add to investors’ insecurities

Nagging pension fears from LTA freeze

The Budget froze the Lifetime Allowance for pension pots at £1,073,100 until April 2026, reversing the annual rise in line with inflation savers had been enjoying for the past four years.

Your normal level of income tax typically applies to pension monies below the LTA limit, but once exceeded there is an additional 25% tax charge on pension payments and 55% on lump sums, so going over could be costly.

Our users have recognised that this freeze will likely see many more people exceeding the limit over time; this is far from just being a concern for those at or nearing retirement

Our users have recognised that this freeze will likely see many more people exceeding the limit over time; this is far from just being a concern for those at or nearing retirement.

We’ve already heard from quite a few people who are looking to tweak their pension strategy as a result, with the question of whether to ramp up ISA savings often cited. If you are looking for expert advice on how to invest your pension savings and minimise tax, let us know when you start your search for a wealth manager.

Chill winds from other freezes

Although the personal income tax allowance and higher-rate threshold will respectively rise to£12,570 and £50,270 (from £12,500 and £50,000) next year, from then on, these levels will be frozen until 2026. Likewise, the Inheritance Tax threshold has been frozen at £325,000 for the foreseeable future.

Amid the gargantuan public debt levels caused by the pandemic, High Net Worth Individuals will be relieved not to see cuts to these thresholds (as many feared). However, higher-earners and those with IHT concerns have of course realised that cuts will manifest stealthily due to wage inflation and property prices rising. As with the LTA freeze, more and more people will find themselves caught up in tax nets intended for the wealthiest due to “fiscal drag”. 

Higher-earners and those with IHT concerns have of course realised that cuts will manifest stealthily due to wage inflation and property prices rising 

No-one can deny the need to raise funds (and how all this must pain a Conservative government which had pledged to push thresholds up). However, it is incumbent on the individual to minimise the burden as much as they can. Tax mitigation is a hugely important pillar of sound wealth management, so ensure you don’t neglect it.

Financial fears fuel advice push

Really strong first-time enquiry numbers and our conversations with users confirm that financial fears are pushing many, many people to consider professional advice who hadn’t before.

This aligns with what the broader industry is seeing and it is clear that the pandemic pandemonium is largely to blame. Less than half of people with over £50,000 in assets now feel highly confident about their finances, down from two-thirds before the COVID-19 strucki. Worryingly, a quarter have decided just not to think about how their plans have been damaged.

Complacency is the number one enemy of effectively managing your wealth and feeds into so many mistakes that could cost you dearly

We’re really pleased to be helping those who have decided they can’t simply stick their heads in the sand and hope for the best. We do encounter people who have been really seriously knocked off course, along with those who have concluded they need to be doing just a bit more to make their wealth work harder.

Complacency is the number one enemy of effectively managing your wealth and feeds into so many mistakes that could cost you dearly. Make sure you don’t pay the price.

i Schroders Personal Wealth
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Top Tip

Financial planning and taxation issues have driven a great many enquiries in recent weeks, and we’re certainly seeing the same dented confidence which research is identifying. Remember, however, that it usually doesn’t take much to be put back on the right track by an expert. Ease your mind by using us to find wealth advice fast and free.

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Inflation insecurity is particularly pronounced

Although there may be a powerful case for quantitative easing and governments shaking their magical money trees to fuel mind-boggling spending, the possible consequences for individual investors are really starting to worry our users.

While the money printing presses continue whir faster, at least a short-term hike to inflation is looking increasingly likely. Some predict it touching 3% in the US in a matter of months.

As savvy investors know, your money’s growth needs to be at least matching the rate of inflation to prevent the real value, or spending power, of your capital being eroded away. And that can happen very fast indeed if your returns are lacklustre. If you are overweight cash, the effect of rock-bottom interest rates means this loss in value could be very painful indeed as prices rise.

As savvy investors know, your money’s growth needs to be at least matching the rate of inflation to prevent the real value, or spending power, of your capital being eroded away

As the experts from our wealth manager panel have pointed out, equities can do well in this kind of environment, as can gold, while anything other than inflation-linked bonds are looking pretty unappealing. 

Many of our users have realised that their portfolios are ill-positioned to deal with an inflationary scenario, and are seeking guidance on how to defend their wealth. Why not have a professional look at your holdings and financial plans to see where inflation could really take a bite?

Continued questioning of cash

It is very easy to cling to the “safety” of cash when market volatility has been violent, but our message that this asset class can be anything but safe seems to be really striking a chord with our users.

While you should certainly have emergency buffers, keeping outsize amounts of your wealth as cash has lots of potential downsides, particularly as the threat of inflation looms.

While you should certainly have emergency buffers, keeping outsize amounts of your wealth as cash has lots of potential downsides, particularly as the threat of inflation looms

We’ve been able to help users with an excess of cash in lots of ways. Some have been helped to find private banks offering far better interest rates than can be found with mainstream banks, while others have found institutions they can diversify their cash holdings amongst, to get added comfort from Financial Services Compensation Scheme coverage (which is capped at £80,000 per institution).

Where we’ve been most pleased to help, however, is where users have been looking to move out of cash and really make their wealth work through an investment portfolio. They’ve often been really surprised to learn how strong the returns can be even for a cautious investment mandate (they will almost certainly be well above mainstream deposit rates).

Do these concerns resonate with you?

Wealth management issues are very easy to put off, but delays in optimally arranging your finances really can cost you dearly over the years – in money, certainly, but often in terms of low-level stress too. These are just a small sample of the wealth worries we’ve been helping people to get on top of.

Seize the initiative if you have a pressing question that you’d like to pose to an expert: we can arrange free, no-obligation discussions with a shortlist of leading wealth managers that will really put you in control

Seize the initiative if you have a pressing question that you’d like to pose to an expert: we can arrange free, no-obligation discussions with a shortlist of leading wealth managers that will really put you in control.

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