Author: Rob Bowers

Looking forward to retirement with high expectations, sometimes for several years, could lead to disappointment when the realities of retiring hit home.

To avoid the negative side-effects of loneliness, boredom, or a lack of purpose, ask yourself these five questions before you set an alarm for work for the last time.

1. What will I do with all my free time when I’m no longer working?

The average life expectancy for a 60-year-old man today is 84. Meanwhile, the average for a 60-year-old woman is 87. There’s also a one in four chance that men could live to 92, and women to 94.

These life expectancy figures means that your retirement could equate to another half of your life. So, think about how you’ll make the time you have interesting and meaningful.

Are there pursuits you always wanted to try but never got around to, or hobbies you’d like to dedicate more time to?

If you have a bucket list, dig it out or start from scratch and write a retirement bucket list. Dream big and list all the things you want to do, places you’d like to go, hobbies you’d like to pursue, and projects you’d like to achieve.

If you have a partner, work on this together. Pursuing passions separately is good, but it’s wise to avoid going too far in developing different ideas for how you want to spend your future, as this could create friction down the line.

2. Where do I want to travel?

Restricted holiday time during your working life may mean there are places in the world you’ve never had an opportunity to explore.

Maybe you’d like to spend a month on safari in Africa, visit India to track down Bengal tigers or see the Taj Mahal? Or perhaps you’d like to spend extended time at sea and live the luxury life, seeing the world by cruise – for days, weeks, or even months at a time?

Listing all the places you’d like to visit will allow you to dream of the possibilities. It will also help you plan how and when you’ll make the trips while you’re still fit enough to make the most of every adventure.

3. What do I want to try?

Back on home turf, consider whether there are activities or hobbies you’d like to get involved with, or things you already do that you’re looking forward to doing more of.

Maybe you’re a keen cook and, with extra time available, want to perfect your kitchen skills by taking a course of Cordon Bleu cooking classes? If you’re fascinated by history, you could volunteer at a local museum or National Trust property.

To keep things interesting, you might even decide to sign up as a film extra. With a little luck and flexibility, you could find yourself on the big screen (albeit in the background) and even a little extra cash in your pocket. Don’t expect it to be glamorous – and turn up to job signings with a book, as there could be a lot of hanging around!

4. How will I keep my mind and body active?

Staying fit – both mentally and physically – should help you enjoy a longer retirement.

Regular physical activity is one of the best things you can do for your health. Research has shown that just 15 minutes of exercise each day can boost longevity, ward off depression, improve sleep, lower blood pressure, and decrease the risk of chronic illnesses.

You don’t have to join a gym – golf, yoga, swimming, walking, running, and cycling can all help keep you fit and active.

And don’t forget to exercise your brain too.

Keep your grey matter active with reading, crossword puzzles, or sudoku, or games such as bridge, chess, or backgammon. Even five minutes spent playing Wordle every day can make a big impact on your cognitive health.

Studies have found that older adults who regularly play word and number puzzles have sharper mental capacity. The more often they played, the better their brain function. Other research has shown that doing crossword puzzles could reduce the onset of dementia by up to two and a half years.

5. Who will I see during a normal week?

As you consider everything you want your retirement to be, make sure to build regular social interactions into your weekly activities.

The loss of regular social contact is an aspect of retiring that many people find difficult to adjust to. If your social life was intrinsically tied to your work, it’s important to plan ahead to avoid becoming isolated when you’re no longer spending time with colleagues.

Avoid loneliness creeping up on you by building regular social activities into your week. Join a club, take up a new hobby, or meet up with a local friend for a regular walk, lunch, or a coffee.

If you’re looking for more inspiration or want to learn something new, u3a run group activities for retirees across the UK. There’s a wide collection of local and online learning groups with loads of opportunities to get involved in. From hiking to painting, book clubs to foreign languages to quizzes and podcasts, there’s bound to be something to inspire you.

Get in touch

If you’re looking forward to retiring in the next few years, and would like to chat about your plans, get in touch and we’ll help you build a retirement plan that matches your goals. Email hello@bluewealth.co.uk or call us on 0117 332 0230.

The content of this newsletter is offered only for general informational and educational purposes.

Against the backdrop of the continuing war in Ukraine, the chancellor has delivered his spring statement.

The war has contributed to uncertainty in the global economy, with the Office for Budget Responsibility (OBR) saying that, “given the unfolding situation in Ukraine, there is unusually high uncertainty around the outlook”.

Disruptions in global supply chains and the Ukraine war have led the OBR to revise downwards their forecast for growth over the next five years. The OBR now forecasts GDP to rise by 3.8% in 2022, down from its 6% growth forecast in last October’s economic and fiscal outlook.

The OBR then forecasts growth of 1.8% in 2023, 2.1% in 2024, 1.8% in 2025, and 1.7% in 2026.

Another current factor underpinning Rishi Sunak’s speech is rising inflation. According to the Office for National Statistics (ONS), inflation in February reached a 30-year high of 6.2%.

As the economic consequences of the Ukraine war continue to unfold, the OBR expects inflation to average 7.4% this year, with a further rise in energy costs in the autumn set to contribute further to the so-called “cost of living crisis”.

The chancellor tackled this issue first.

Fuel duty to be cut by 5p a litre until March 2023

As well as the £9 billion plan to help households pay around half of the April energy cap increase, unveiled by the chancellor in February, fuel duty will be cut for only the second time in 20 years.

Sunak cut the duty by 5p a litre until March 2023, calling it the “biggest cut to all fuel duty rates ever”. The reduction in duty will come into effect from 6 pm on 23 March 2022.

According to the Treasury, this cut represents a saving worth around £100 for the average car driver, £200 for the average van driver, and £1,500 for the average haulier, when compared with uprating fuel duty in 2022/23.

Cut in VAT on home energy installation

To further encourage households to invest in energy-efficient measures, and to keep energy costs down, Sunak announced an extension to the VAT relief available for the installation of energy-saving materials.

Taking advantage of Brexit freedoms, the chancellor announced that homeowners looking to install measures such as heat pumps or solar panels won’t pay any VAT (except for households in Northern Ireland).

The Treasury say that a typical family having rooftop solar panels installed will save more than £1,000 in total on installation, and then £300 a year on their energy bills.

A three-step tax plan for the rest of the parliament

Arguing that it’s “only Conservatives [who] can be trusted with taxpayers’ money”, Sunak unveiled a new three-point tax plan for the remainder of this parliament.

Calling it “a principled approach to cutting taxes”, the chancellor outlined the “direction of travel” of how he intends to reduce the tax burden responsibly and sustainably.

1. Help families with the cost of living

As the NHS rebounds from the Covid-19 pandemic, and with the challenges facing the social care sector, Sunak argued that it was only right that the rise in National Insurance contributions (NICs) – which will become the new Health and Social Care Levy in 2023 – stays.

However, to reduce the tax burden on working people, the chancellor raised the National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, from £9,880 to £12,570. This equalises the NICs and Income Tax threshold from July 2022.

This means that individuals will be able to earn up to £12,570 a year without paying any Income Tax or NICs.

This increase will benefit almost 30 million people, with a typical employee saving more than £330 in the year from July. Around 70% of NICs payers will pay less contributions, even after accounting for the introduction of the Health and Social Care Levy.

The Treasury say that around 2.2 million people will be taken out of paying Class 1 and Class 4 NICs and the Health and Social Care Levy entirely.

Sunak also announced that, from April, self-employed individuals with profits between the Small Profits Threshold and Lower Profits Limit will not pay Class 2 NICs. So, lower-earning self-employed people will be able to keep more of what they earn while continuing to build up NI credits.

2. Create conditions by encouraging higher growth

As the chancellor set out at the Mais Lecture in February, the government considers that a new culture of enterprise is essential to drive growth through higher productivity.

So, Sunak announced a range of measures aimed at businesses including:

• The temporary £1 million level of the Annual Investment Allowance will be extended until 31 March 2023.
• The business rates multiplier will be frozen in 2022/23.
• A new temporary 50% relief in Business Rates for eligible retail, hospitality, and leisure businesses. It means the average pub, with a rateable value of £21,000, will save £5,200. The average convenience store, with a rateable value of £28,500, will save £7,000.
• Business rates exemptions for eligible plant and machinery used in onsite renewable energy generation and storage will be brought forward to April 2022.
• From April 2023, all cloud-computing costs associated with R&D, including storage, will qualify for R&D relief.
• The Employment Allowance will increase to £5,000. This means eligible employers will be able to reduce their employer NICs bills by up to £5,000 a year, and that businesses will be able to employ four full-time employees on the National Living Wage without paying employer NICs.

Sunak also announced he would be consulting on a range of measures to reform business taxes and reliefs ahead of the autumn Budget.

3. Proceeds of growth shared fairly

While arguing that it would be “irresponsible” to cut taxes in the current environment, Sunak reaffirmed his commitment to reducing the tax burden in the coming years.

He said that, by 2024, the OBR expects inflation to be back under control, debt to be falling sustainably, and for the economy to be growing.

So, presuming the government will have met its own fiscal principles, the chancellor committed to reducing the basic rate of Income Tax from 20% to 19% from April 2024.

This is a tax cut of more than £5 billion a year and represents the first cut in the basic rate of Income Tax in 16 years.

Interestingly, with more than 1,000 tax reliefs and allowances available, the government have also committed to considering tax reform “to better support a fair, efficient, simple, and sustainable tax system”.

Watch this space!

Get in touch

If you have any questions about how the spring statement will affect you and your finances, please get in touch.

All information is from HM Treasury Spring Statement 2022 document.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Retirement is something many of us think about and look forward to. The best way to make sure your retirement is everything you hope is by having a well-laid plan.

Taking time to understand how much money you need and how you can use your assets to achieve the level of income required can inspire confidence and peace of mind that the next phase of life will be enjoyable and affordable.

To help ensure you are on course for the lifestyle you hope to enjoy, here are five practical planning steps you should take in the years leading up to your retirement.

1. Consider the lifestyle you’d like to enjoy when you retire

Take time to think about your retirement and how you’d like to spend it. Imagine what you might want to achieve when you’re no longer working.

This new chapter presents a perfect opportunity to revisit your bucket list, experience new things, and create a lifestyle that you love.

According to The Great British Retirement Survey 2021, carried out by interactive investor, 3 in 10 workers said they hope to travel more when they retire. Whether travelling is your goal, or you have something else in mind, consider what you want your day-to-day life to be like. Also, remember to consider any one-off experiences you’d like to enjoy.

2. Figure out your income needs

With a good idea of how your retirement might look, you can start to calculate how much income you’ll need to enjoy your preferred lifestyle.

This can be a useful exercise. It will help you gain an understanding of whether you’re on track or if you might need to adjust your savings and investments while you have time.

Typically, most people require between 60% and 80% of their pre-retirement income, but this depends on the plans you have in mind.

3. Think about how your income needs may change over time

According to data from the Office for National Statistics (ONS), the average man in the UK can expect to live until 79 while the average woman lives to be around 83.

This means that you’ll probably be able to enjoy a much longer retirement than previous generations. However, it also means that you may need to consider how your circumstances and income needs might change over time.

Inflation is one of the biggest risks to your retirement lifestyle. Remember that, if you expect to live for 20, 30, or 40 years after you retire, your income will need to keep pace with rises in the cost of living over that period.

4. Review your income sources and assets

Once you’ve worked out the income you need, you’re ready to figure out if you have adequate income sources to fund the retirement you want.

To form a picture of the income you could receive during your retirement, gather information on the pensions and other assets you have.

Establish what you can expect to receive from the State Pension

Your State Pension forecast, available from the government website, will tell you how much you could get, when you can get it, and whether it’s possible to increase it.

Check for gaps in your National Insurance contributions (NICs)

As with your State Pension, you can check your National Insurance record on the government website. This will also tell you if it’s possible to pay voluntary contributions to make up for any gaps you may have, which could boost the amount of State Pension you receive.

Track down all your pensions and investments

If you’ve lost track of some pensions or investments but know who the providers are, call them and ask for an up-to-date statement. Alternatively, if it was an employer pension, your old employer should be able to help you locate the details.

You can also use the Pension Tracing Service to track down lost pensions.

Get up-to-date information

Make sure you have up-to-date information on all your pensions and investments. Your last annual statement should be enough to help you understand the approximate value and any income you might receive in the future.

5. Talk to a financial planner

In the years leading up to your retirement you should think about how your savings are invested. If you are looking for growth, it could pay to consider higher-risk investments that could produce greater returns.

Alternatively, if your retirement is imminent, you may prefer to move your savings into a fund that exposes your money to less risk.

We can help ensure that your pension investment strategy aligns with your appetite for risk while generating the best possible returns.

In addition to your pension savings, you may have other investments that you have been using to save for your retirement.

Collating a full picture of all the assets you could use to generate your desired income can get complicated. We can help you work out how to best use your assets to provide a tax-efficient income that is sustainable over the long term.

Get in touch

If you’re looking forward to retiring in the next few years, we can help you build a retirement plan that matches your goals. Email hello@bluewealth.co.uk or call us on 0117 332 0230.

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

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.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

Since the start of 2022, you’ve probably noticed that global markets – and perhaps the value of your pension or investments – have been a little uncertain.

Over the last week or two, the ongoing situation in Ukraine has exacerbated this volatility.

It’s natural to feel nervous or worried when national or global events have a direct influence on your wealth. In recent weeks, there has been an almost perfect storm of events that have conspired to unnerve markets around the world, including:

• The Russian invasion of Ukraine
• Rising inflation across the developed world
• Steep rises in the cost of energy for both domestic and business customers
• Ongoing Covid concerns
• Continuing global supply chain issues.

Read on to find out more about how markets have fared so far in 2022, and three helpful tips to manage your concern during a difficult period.

Markets have endured a volatile start to 2022

Since the turn of the year, markets have been noticeably jittery. Between 1 January and 26 February 2022, the US S&P 500 index fell by around 8%, while the German DAX fell by around 9% in the same period.

Despite falls in some markets, it’s interesting to note that, while the UK stock market may have been volatile in 2022 to date, the FTSE 100 is broadly at the same level it was at the start of 2022 – even with everything that’s happened on the global stage.

You can see this in the chart below, that shows the performance of the FTSE 100 from 1 January to 26 February 2022.

Source: London Stock Exchange

In simple terms, if you had invested in a FTSE 100 tracker, the value of your investment would be broadly the same at the end of February as it was at the start of January.

However, with experts predicting a protracted war in Ukraine alongside an inflation rate not seen for decades, it’s likely that a tricky few months lie ahead.

So, here are three tips that may help you manage any anxiety you have about your finances.

1. Try not to panic

Imagine the value of your home had fallen by 10%. What would you do?

Would you immediately panic, worry about potential further erosion of value, and sell your home straight away?

Or would you remain patient, trust that markets generally tend towards growth, and wait until prices recover?

It’s almost certain you’d take the second path. This is also a good way to think about the value of your pensions, ISAs, shares, and investments.

We only have to go back a couple of years to see this in action.

One of the immediate effects of Covid-19 arriving in the UK, and the first national lockdown, was that the UK stock market fell sharply. Between 21 February 2020 and 23 March 2020, the value of the FTSE 100 fell by just under a third, as the chart below shows.

Source: London Stock Exchange

Had you sold your investments at the bottom of the market, you’d likely have crystallised a significant loss.

However, had you remained patient, the FTSE 100 had recovered to its February 2020 level by the winter of 2021 – less than two years later.

Source: London Stock Exchange

The lesson here is that, over time, markets typically recover. You may have to remain patient, but cashing in equities after a market fall can simply turn a paper loss into an actual loss.

2. Don’t check the value of your portfolio every day

In periods of uncertainty, you may check the value of your investments more regularly than usual. It’s a perfectly natural reaction to volatility.

However, this often only increases your anxiety and worry and can magnify sharp moves in the markets.

For example, the FTSE 100 fell by 3.8% on 24 February – the day Russia invaded Ukraine – but rose by almost 4% the following day.

You also have to consider that it’s highly likely that your investments are diversified across sectors and countries. So, hearing a negative headline about the FTSE 100 on the BBC news won’t necessarily reflect what’s happened to the value of your own assets.

That’s because you’ll likely be invested in dozens of countries and hundreds of companies around the globe. Diversification helps to mitigate a fall in one area because it can be balanced by growth in another.

In a world of rolling 24-hour news, it can be hard to “drown out the noise”, but resisting the temptation to check the value of your assets every day can help you ride out periods of uncertainty.

3. Focus on your long-term goals

While you may be concerned about the short-term volatility of markets, it’s important to remain calm and stay focused on your goals.

Whenever you invest in equities, short-term volatility is something that you should expect and accept. Everything from the Budget to global geopolitics can affect what happens to markets around the world. On any given day or week, prices will fluctuate in the short term.

However, in the long term – and that’s what you’re likely to be investing for – markets tend to offer positive returns.

Here’s a useful summary of the annual return of some of the major stock indices over the 10 years to 2021. It shows that, with one or two exceptions, stock markets over the last decade have tended to produce positive annual returns – even in the light of Brexit, economic uncertainty, and Covid-19.

Of course, 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.

Source: JP Morgan, FTSE, MSCI, Refinitiv Datastream, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. All indices are total return in local currency, except for MSCI Asia ex-Japan and MSCI EM, which are in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 31 January 2022.

If your long-term goals haven’t changed, it’s unlikely that your plans should.

Your goals are likely to be the same as they were a week or a month ago. We design our investment strategies with the long term in mind, and this naturally considers periods of both positive and negative returns.

We’re here to help

One of the ways we can help you achieve your goals is by acting as a “sounding board” during periods of instability. We’re here to help you avoid making knee-jerk decisions that can impact your long-term goals.

If you would like to chat to us about the current uncertainty, or you’d like to review your financial plan, please get in touch.

Please note

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.

In 1793, a vast army of the French First Republic locked horns with a combined force of Royalists and their foreign allies at the port city of Toulon. It was in this battle that a young artillery officer caught the attention of his superiors, demonstrating not only a high level of organisational skill, but also tactical brilliance and the charisma needed to inspire his men.

This officer was, of course, Napoleon Bonaparte, and the Siege of Toulon would be the first major stepping stone in his long and glorious career.

When you’re looking for tips for growing your wealth, Napoleon isn’t the first person you might think of. Yet, his innovative and dynamic style of leadership can teach you many valuable lessons.

Read our latest guide to learn more about Napoleon and why he can teach you the importance of:

1. Having reserves to protect against unexpected shocks
2. Keeping an eye on inflation
3. Understanding your attitude to risk
4. Diversifying your assets
5. Making an informed decision.

Download your copy of 5 lessons that Napoleon can teach you about your growing your wealth to learn more.

If you have any questions about investments or your financial plan, please contact us.

We are more aware than ever of how the choices we make can affect the environment and social wellbeing of the planet. And this concern has filtered into decisions about how and where we invest our money.

This mounting interest in investing with consideration for both the environment and towards social responsibility has led to a huge number of new ESG investment funds coming to the market.

There are now more than 343 sustainable investment funds available to UK investors. And Morningstar reported that 169 new ESG funds were launched during the first quarter of 2021 alone.

But what does ESG actually mean, and how do you know which funds are doing good for the planet? More importantly, can these funds also provide good investment returns?

Read on to find out everything you need to know about ESG investing.

ESG stands for “environment, social, and governance”

While ESG is the most popular term for ethical investing, other terms you may come across include “SRI”, or socially responsible investing, “impact investing”, and “ethical screening”.

Multiple labels can make it difficult to know where to start. This article focuses on ESG, so to help clarify things, this is how it all breaks down in business practices:

E is for environment

Environmental factors include climate change, greenhouse gas emissions, carbon footprint, water usage, biodiversity, renewable energy, and pollution and waste. An example you might consider when assessing a company’s ESG rating is how much water they use in their manufacturing processes.

S is for social

Social factors include community relations and labour policies, product safety, supply chain sourcing, and social impact reporting. If you want to ensure you’re investing in a company that cares about their people, you may want to seek one that pays more than the minimum wage or seeks to hire a diverse work force.

G is for governance

Governance factors include shareholder rights, diversity, business ethics, and transparency. An example of good governance practice would be a company with a diverse board or one whose founder doesn’t hold majority voting rights.

Decide what you care about most

If you’re interested in making sure you invest in companies that care about the world, start by thinking about what it is that most matters to you.

For example, if climate change is your top concern, you might decide to avoid investing in companies that manufacture fossil fuels or rely on such fuels in their manufacturing.

However, if you’re more concerned about the way a business treats their people, you may want to focus your attention on the social side of ESG and invest in companies who pay their employees well and ensure good working conditions.

Risks to be aware of before you commit your funds to ESG

Although the Financial Conduct Authority are making moves to regulate and standardise ESG funds, there isn’t yet an agreed-upon standard for evaluating ESG performance.

Without a measure that companies must adhere to, inconsistencies in ESG portfolios and funds are inevitable. For example, most people would be surprised to learn that Shell is listed as an ESG company; this is because they invest heavily in researching green energy solutions.

To be sure your ESG funds align with your values, learn how the fund screens its underlying investments.

New ESG proposals should be announced by spring 2022

In late 2021, an advisory group, overseen by the FCA, met for the first time to discuss how ESG fund labelling could be improved. With new regulation likely to be implemented, you may wish to wait until the FCA have completed their research before you commit your funds to ESG.

Waiting until there’s a more widely accepted measure companies must attain to gain a recognised ESG rating may help you avoid the potential of buying an investment that doesn’t truly align with your values.

Is investing in ESG good for my money?

ESG companies can perform better than non-ESG companies. Although research is limited, studies that have been carried out tend to show that ESG investing as part of a well-balanced portfolio can reduce risk and generate competitive investment returns.

In fact, a study, conducted by Morningstar in 2020, found that the majority of ESG strategies performed better than non-ESG funds over one, three, five, and 10 years. And research published in the Financial Times found that “close to 6 out of 10 sustainable funds delivered higher returns than equivalent conventional funds over the past decade”.

Some believe that this may be because a company focusing on ESG requires strong leadership. Since ESG initiatives rely on long-term strategies, a leadership team who can realise long-term outcomes – while successfully running the core business – is a competitive strength.

Remember, ESG factors are no guarantee of investment performance. As with any stock market investment, you may still experience short-term volatility and there is always some risk involved.

One of the most important aspects for long-term investment performance is having a well-diversified portfolio across different asset classes and geographies.

There’s a lot to take into consideration when approaching ESG investment. We can help you understand all your options and explain how underlying companies stack up with their ESG business practices. We’ll go through all the information and find a suitable approach to building your investment portfolio based on your values and long-term financial goals.

Get in touch

If you’d like to learn more about ESG investing and how you can invest your money and do good for the world, please get in touch.

Email hello@bluewealth.co.uk or call us on 0117 332 0230.

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice.

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.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

Setting out a financial plan and thinking about your long-term goals if you have a family is important. It can help ensure you reach your goals and create security for you and future generations.

For parents and grandparents, thinking about family when setting out your financial plan can help you protect the people that are most important to you and help you get a head start on milestones you may want to help loved ones with.

Perhaps you want your children to go to private school or leave behind an inheritance that will create later life financial security? By making family a core part of your financial plan, you’re more likely to turn these goals into a reality.

The first section of this guide looks at practical things you can do to create financial security, like writing a will or opening a savings account for a child, and answers some questions you may have, such as: should I create a trust to pass on wealth?

It’s not just about the financial support we’re able to offer family either. Passing on knowledge and experience can be crucial in creating long-term security for the next generation. The second part of this guide looks at how you can help children and grandchildren lay the foundations for financial security in adulthood.

Download a copy of Your Guide to Children and Money to learn more.

If you have any questions about the topics covered in the guide, or would like to discuss what you can do to improve the financial security of your family, please get in touch.

Following a sharp increase in the price of gas and electricity, inflation now stands at 4.2%, up from 3.1% in September.

It’s at its highest rate since November 2011 and stands 2.2% above the 2% rate that the Bank of England (BoE) aims for. This sharp rise in the cost of living is applying more pressure to households across the UK.

Read on to find out more about how inflation works, how it can affect your finances, and what you can do to prevent it from harming your wealth.

How inflation erodes your purchasing power

Inflation is a measure of the rate that prices are rising. Low levels of inflation are hard to detect over the long term, but price rises can have a big impact on how far your money will go.

Inflation means your money loses value over time. As an example, here’s how much bread you could buy with £1 over the past few decades:

• 1970: £1 = 10 loaves of bread
• 1980: £1 = 3 loaves of bread
• 1990: £1 = 2 loaves of bread
• 2020: £1 = 1 loaf of bread

Today, £1 can buy you far less bread than you’d have got in 1970. And, in another 10 years, it will buy even less. This is referred to as the “purchasing power” of your money.

Economic stagflation will reduce the purchasing power of money you save in the bank

Economic stagflation happens when slow economic growth occurs alongside high levels of inflation. This will affect the purchasing power of money you have saved in the bank.

One way to avoid this problem is to make sure your savings account pays more interest than, or at least matches, the rate of inflation. So, with inflation at 4.2%, ideally you want your savings in an account paying at least 4.2% interest.

This is easier said than done, however, as there are very few savings accounts paying high enough interest to make up the necessary difference.

Plus, if you have to pay tax on your savings interest, you’ll need an even higher rate of interest to keep pace with inflation.

Your income may not keep pace with inflation

If the money you earn remains stable or rises less than inflation, you’ll see a fall in the real value of your income because you’ll be able to buy less with what you make.

Some people will be lucky and see their income keep pace with inflation and rising prices. Lorry drivers, for example, will probably see an increase in their earning power because firms need to attract more drivers to fill the roles available and so will have to pay higher salaries.

A few things that you may have noticed cost more

Petrol

Although the autumn fuel crisis was short-lived, and you no longer need to queue to fill your car with petrol or diesel, prices are still high. In November, the RAC revealed that the average price of unleaded petrol was 146p a litre and diesel recently reached 150p a litre.

If you need to fill up a 55-litre family car with unleaded petrol, it will now cost more than £80.

RAC fuel spokesperson Simon Williams warned drivers to expect an “excruciatingly expensive winter”, and those on a low income or who use their car to travel to work every day will particularly feel the pinch.

Source: Office for National Statistics (ONS)

Heating bills

As we enter the colder months, the cost of heating our homes naturally increases. But this winter these costs are likely to hit some people far harder than usual.

There’s been plenty of press coverage about the rising price of gas and electricity. While the cost to suppliers has soared to unprecedented levels for a variety of complex global reasons, the effect is now being felt by consumers.

Several suppliers have gone bust, and their customers have been moved to another supplier, but many will now be on a more expensive tariff.

Even if your electricity supplier is still in business, chances are you’ll have noticed an increase in your bills or have had to increase your monthly direct debit in line with rising prices.

Crisps and snacks

Data from Kantar showed that the cost of savoury snacks, such as Pringles, Doritos, and Hula Hoops, rose 7.6% in the 12 weeks to the end of October.

As well as these moreish snacks, the price of canned cola, potato crisps and cat food all increased by almost 6% or more.

Retailers have had to resort to price hikes in an attempt to offset higher costs of transport, fuel, stock and wages.

Steps you can take to protect your finances from inflation

While you can’t stop inflation from happening, your personal rate of inflation depends on how you spend your money. It won’t necessarily match the official rate of inflation.

Calculate your personal inflation rate

You can calculate your personal inflation rate by tracking your own spending and calculating the percentage change from one year to the next.

If you keep a household budget, you may be able to work this out easily by looking back to see what you were spending this time last year versus what you have spent this year.

Invest your cash

With your wealth and investments, investing wisely in the stock market can give your money the best opportunity to beat inflation and grow.

Investing in the stock market comes with some risk, but history shows that, over the long term, equity investments tend to outperform cash and produce an above-inflation return.

To illustrate the power of investing in the stock market, the chart below illustrates how £100 invested in cash compared to the FTSE 100 index.

Source: Refinitiv Datastream (total return assumes that all earnings and dividends are reinvested.)

Protect your money in a “safe haven”

During times of inflation, some people prefer to put their money in so-called “safe havens”.

“Safe havens” are assets that you’d expect to remain popular over decades because the supply is limited. “Safe havens” can include rare or unique items such as classic cars, works of art, or commodities such as gold or platinum.

Talk to a financial planner

For the best chance of protecting your wealth and finances against inflation, talk to a financial planner. They will have a deep understanding of the problems you face and the different ways you can mitigate the issues based on your own financial circumstances.

Get in touch

If you’re concerned about the effects of inflation and want to find out how you can protect your wealth, we can help.

Email hello@bluewealth.co.uk or call us on 0117 332 0230.

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as and does not constitute financial advice.

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.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd which is authorised and regulated by the Financial Conduct Authority.

“Employment is up, investment is growing, public services are improving, the public finances are stabilising, and wages are rising.” This is the backdrop against which Rishi Sunak presented the 2021 Autumn Budget.

Promising “a stronger economy for the British people”, the chancellor outlined his taxation and spending proposals. Here’s a summary of the key points and what they mean for you.

Firstly, though, a reminder of two important tax changes that have already been unveiled.

2 important announcements already made

Back in September, the prime minister made two headline-grabbing tax announcements.

From April 2022, National Insurance rates for both employees and the self-employed will rise by 1.25 percentage points across earnings bands. Millions of employees and many employers will see their National Insurance contributions increase, raising around £12 billion a year for the Treasury.

This rise will be rebranded as a “Health and Social Care Levy” from April 2023, when National Insurance rates will revert to their current levels.

From April 2023, anyone who is working beyond the State Pension Age will be asked to pay 1.25% on their earned income for the first time.

In addition, Dividend Tax rates will also rise 1.25 percentage points from April 2022. The £2,000 allowance will remain, but anyone earning more than £2,000 in dividends will pay a higher rate of tax.

The economy is recovering quicker than expected

The chancellor began his speech by outlining Office for Budget Responsibility (OBR) data that expects the economy to return to pre-Covid levels at the start of 2022.

The OBR has revised their growth estimate for the UK economy from 4% to 6.5% in 2021, then forecasts 6% growth in 2022, followed by 2.1%, 1.3% and 1.6% over the next three years. They also revised down the effect of Covid “scarring” on the economy from 3% to 2%.

Sunak also said that he expects inflation to average 4% over the next year. He highlighted two reasons for this:

• As economies around the world reopen, demand for goods has increased more quickly than supply chains can meet
• The pressures caused by supply chains and energy prices will take months to ease.

“I am in regular communication with finance ministers around the world and it’s clear these are shared global problems, neither unique to the UK, nor possible for us to address on our own,” he added.

The improving fiscal position also means that the chancellor forecasts a return to spending 0.7% of GDP on foreign aid before the end of this parliament.

The chancellor also confirmed that every government department will get a real terms rise in spending each year.

Tax

While the main tax announcements have already been made, the chancellor announced several reforms:

• A new 4% levy on property developers with profits of more than £25 million, to help fund a £5 billion fund to remove unsafe cladding
• A reduction in air passenger duty for domestic flights between UK airports from April 2023. 9 million passengers will see their duty cut by half, boosting regional airports. There will also be an increase in duty for long-haul flights of more than 5,500 miles
• The bank surcharge, levied on bank profits, will reduce from 8% to 3% from April 2023. The chancellor said that this should help bolster London’s competitiveness as a global financial centre after Brexit
• The planned rise in fuel duty has been cancelled. The average car driver now saves £1,900 a year because of a 12-year freeze in fuel duty.

In a tiny technical change, the deadline for residents to report and pay Capital Gains Tax after selling UK residential property will increase from 30 days after the completion date to 60 days.

The chancellor also set out plans to reform alcohol duty, made possible because the UK has now left the European Union.

Arguing that the tax, first introduced in 1643 to pay for the Civil War is “a mess”, the main duty rates will reduce from 15 to 6 around the general principle of “the stronger the drink, the higher the rate”.

• Small Brewers Relief will be extended to cider makers and other producers making drinks less than 8.5% ABV
• The duty premium on sparkling wines will end, so drinkers will pay the same duty on prosecco and English and Welsh sparkling wine as on still wines
• A new “draft relief” will see a lower duty rate on draft beer and cider. Set to benefit community pubs, this cuts duty by 5% and represents the biggest cut to cider duty since 1923 and the biggest cut to beer duty for 50 years.

Shares in pub chain JD Wetherspoon jumped 5.5% on the news.

Finally, the chancellor announced a total of £7 billion of cuts to business rates. The retail, hospitality, and leisure sectors will benefit from a 50% business rates cut for one year, enabling businesses to claim a discount on their bill up to £110,000. This will benefit cinemas, music venues and so on.

Sunak concluded his speech by confirming that “my goal is to reduce taxes” calling it “my mission for the remainder of this parliament”.

Despite this, the OBR has confirmed that the tax burden is set to rise from 33.5% of GDP recorded before the pandemic in 2019/20 to 36.2% of GDP by 2026/27.

This is the highest level since late in Clement Attlee’s post-war Labour government in the early 1950s, when the economy was struggling after the economic shock of the second world war.

Housing

To boost the building of new homes, the chancellor announced an £11.5 billion fund to build up to 180,000 new affordable homes. He described it as “the largest cash investment in a decade, 20% more than the previous programme”.

Sunak also confirmed a £1.8 billion brownfield fund, which will help “unlock 1 million new homes”.

Savings

The chancellor announced the creation of a new National Savings & Investment (NS&I) Green Savings Bond.

These were made available to customers via NS&I on 22 October and will be on sale for a minimum of three months. These three-year fixed-term savings products will pay an interest rate of 0.65% and customers can invest between £100 and £100,000.

As with all NS&I products, the Green Savings Bonds come with a HM Treasury-backed 100% guarantee.

The Treasury also announced that the Individual Savings Account (ISA) annual subscription limit will remain at £20,000 in 2022/23. The annual subscription limit for Junior ISAs and Child Trust Funds for 2022/23 will be maintained at £9,000.

Changes to the National Living Wage and Universal Credit

The National Living Wage (the minimum wage) for over-23s will increase from £8.91 to £9.50 an hour. This represents an increase of £1,000 a year for a full-time worker and more than 2 million people will benefit.

“To make sure work pays”, the chancellor announced a change to the Universal Credit taper from 63p to 55p and promised to introduce this before December 1. He will also increase work allowances by £500 a year to help working families with the cost of living.

This enables more working families on the lowest incomes but working to keep more of their earnings. Sunak says that a single mother of two renting, and working full-time on the National Living Wage, will be better off by around £1,200.

Other spending announcements

Sunak unveiled a raft of spending commitments in areas from education to health.

• £21 billion on roads and £46 billion on railways
• A guarantee to spend £5.7 billion for London-style transport systems across city regions
• Spending on cycling infrastructure of more than £5 billion
• 20,000 new police officers, an extra £2.2 billion for courts and rehab facilities, and £3.8 billion for prison-building
• £300 million towards A Start for Life, supporting new parents, and £150 million for Early Years training and holiday programmes
• At least 100 places will benefit from the “levelling up” fund. The first round of successful bids to the fund, worth £1.7 billion, have been announced, including projects in Stoke-on-Trent, Bury and Burnley
• £500 million in funding to help people back into work in “the most wide-ranging skills agenda this country has seen in decades”. This includes careers help for older workers and builds on extra funding for apprenticeships and traineeships already announced in the spring.

Sunak also announced £205 million to transform grass-roots sport by funding up to 8,000 community sports pitches. He also committed £11 million towards the FA bid to host the 2030 World Cup.

There will also be £2 million for a new Beatles attraction on the Liverpool waterfront.

Get in touch

If you have any questions about how the Autumn Budget will affect you and your finances, please get in touch.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.