Wealth Management Update December 2023

THE AUTUMN STATEMENT: WHAT WAS ALL THE FUSS ABOUT?

Leading up to the Autumn Statement, everyone was geared up for impactful and dramatic changes, especially around the big hitters like Inheritance Tax and Income Tax.
Whilst he may have announced ‘110 policies’ for growth, most of them were filler rather than fabulous, and left everyone feeling a bit flat.
Here’s a rundown of the main changes:

• Class 1 NIC cut from 12% to 10% from Jan 2024. If you are still employed, this is one for you.
• Class 4 NIC cut from 9% to 8%. For all those who are self-employed.
• Triple Lock for state pensions agreed at 8.5%. On top of the 10.1% rise last year this is adding up.
• Multiple ISA subscriptions. You are now allowed to open and pay into multiple ISAs of the same type in a single tax year.

There were also forecasts that inflation would fall to 2.8% by the end of 2024 and down to 2% in 2025. As well as the expectation that living standards are not expected to return to pre-pandemic levels until 2027/28.

Other than that, there was little else to write home about! Whilst there seems to be more that Jeremy Hunt and the government could have done to boost the economic growth they kept referring to, we are sure part of all of us is a bit grateful they didn’t make any more wild moves that you need Alan Turing to help you decipher.

CASH IS STILL NOT KING

With the stock market up and down like a yo-yo and returns continuing to be lacking, the urge to move investments into cash remains tantalising, especially with interest rates on cash accounts still being quite favourable.

However, whilst the returns on cash are currently high, they very rarely provide interest that is above the rate of inflation. Add to that, that cash is the worst performing asset class over the long term (3 years or more), then moving to cash is almost always a guaranteed way to make a loss.

If your risk attitude allows, then investing, although it comes with more volatility and the potential for both losses and gains, at least has the ability to make gains in a high inflation environment.

Now, you should always have 3-9 months’ worth of expenditure on deposit as a cash emergency fund. But if you are holding more than this in cash it may be time to reassess whether that is the best thing for you, considering that holding high amounts of cash is likely to equate to a reduction in value and income in real terms.

Below is an example of the difference in holding cash versus being invested in the markets from 1992 to 2022, and the result of exiting to cash at certain points. As you can see, whilst past performance is not a guide to the future, investments tend to outperform over the long term.

NOMINATE YOUR PENSION BENEFICIARY NOW

Pensions can be passed to beneficiaries on death free of Inheritance Tax (IHT), making them a valuable savings vehicle during your lifetime but also on death.

This means it’s very important you have nominated your Pension beneficiary so the benefits can be paid out in line with your wishes and as quickly as possible.

The nomination you make cannot be legally binding, as that would mean the Pension would be subject to IHT as it would be considered inside your estate. However, it is unusual for the Pension administrator to vary from your wishes unless there are extenuating circumstances.

A nomination can usually easily be made with your Pension provider, and it is not normally that arduous. So, if you are yet to nominate your beneficiary or need to change the details, make sure you do it as soon as possible to avoid any unnecessary stress for those you leave behind. Consider setting up a Pension Trust for protection from predators and creditors. Take a look at our Guide to Trusts for more information.

LPAs: WHO SHOULD BE THE CHOSEN ONES?

We recently let you know that the process of applying for and registering LPAs was hopefully going to become much easier and quicker as the recommendations to overhaul the system were approved.
Whilst the process to become an attorney will hopefully be easier in the future, what about the actual role itself?

Choosing who you want to act as an attorney is an important decision and one not to be taken lightly, considering they could end up in charge of your finances and/or health.

Assuming the person you choose is willing and able to act on your behalf, the main criteria are that they are over the age of 18, have mental capacity and are not declared bankrupt (property and affairs only).

But the decision goes further than basic criteria. The person you choose needs to be trustworthy, reliable, capable of making difficult decisions, able to act in your best interest, be discrete and keep your affairs confidential be confident at managing money and able to keep detailed records of their activities.

These are only some of the qualities required and they may (in fairly few circumstances) have to liaise with the court of protection or other legal entities in the course of their duties.
Our advice would be to make any potential attorneys aware of the expectations and criteria that will be imposed on them and ensure they are up to the task before they are appointed.

We are happy to give you more guidance and help on who from your life may be suitable to be an attorney if we are helping you implement the documents – take a look at our Attorney Guide or watch our guide videos on Health and Welfare LPAs and Property and Affairs LPAs for more information.

A TALE OF TWO SIDES OF CARE

Planning for care can be a challenge just because of the number of unknowns. When will you need care, how much will you need and most importantly, how much will it cost?

There have been several cases we have come across recently where we’ve been reminded of the different types of care and what repercussions those differences have.

Continuing Healthcare (CHC) is the service whereby the NHS has a legal obligation to pay the full cost of a person’s care, irrespective of their wealth, if their needs fall under ‘health’ (as opposed to ‘social’). The problem is that many people are incorrectly assessed by the NHS as having ‘social’ care needs rather than ‘health’ care needs, a figure of around 30%. This means they then become liable to pay for their care when they shouldn’t have to.

The cost of care has gone up by 10% over the past year and is now on average £41,600 per annum for a residential care placement and £56,056 for a nursing home placement. So, it’s important that you make sure you or any family members needing care are categorised correctly and if you are unhappy with a decision, it can be challenged through the NHS appeals process. If you need help with this, please do let us know.

TOP THREE CASH ISAs

Please check the terms and conditions before opening any account. If in doubt, consult with your financial adviser directly, as the above is for your information only.
Source: Moneysavingexpert.com 04/12/2023