Category: Financial Adviser Blog

INTRODUCTION

The question of how to fund social care is one that has dogged politicians of all parties for decades. On entering Downing Street in July 2019, the Prime Minister Boris Johnson said “…we will fix the crisis in social care once and for all, and with a clear plan we have prepared…”. On Tuesday 7 September 2021, details of that plan finally emerged.

THE SOCIAL CARE PROPOSALS

The government’s reforms will use the existing framework of the Care Act 2014, which in turn was based on a set of proposals developed in the Dilnot report on social care of a decade ago. The new reforms will only apply to care in England, as Wales, Northern Ireland and Scotland have their own care schemes and funding mechanisms.

The main changes, which apply to those starting care from October 2023, are:

Capital means testing

The current English system requires anyone with capital of over £23,250 to fund all their care costs – ‘self-funding’. The value of an individual’s home is generally counted towards the capital means test unless it is occupied by a partner, dependant, or relative aged at least 60. The new rules raise the cap for full fee payment to £100,000, compared with the £118,000 proposed alongside the Care Act 2014.

At the lower end of the capital means test, there is currently no requirement to use any savings to help meet care fees if wealth is below £14,250 (although there may still be an income-based means tested contribution). This limit will rise to £20,000.

Between the upper and lower capital limits there is currently an ‘income tariff’ contribution of £1 a week for each £250 (or part thereof) of capital above £14,250, an effective rate of 20.8%. The new regime will continue to have an income tariff between the new limits of £20,000 and £100,000. The government’s paper says that this will be levied at “no more than 20 per cent”, which points to little if any change. At worst, it implies a contribution of £16,000 a year for someone with capital just below the new £100,000 ceiling.

Total fees cap
Currently there is no direct cap on the total amount that an individual can be required to pay for their care. For those entering care from October 2023, there will be a new fee cap, set at £86,000 initially (against £72,000 envisaged alongside the Care Act 2014). The cap will only apply to the costs of personal care, not accommodation charges (sometimes referred to as ‘hotel’ costs).

The Care Act 2014 based the personal care cost ceiling on the fees that would be paid by the relevant local authority, which are typically much less than self-funders are charged by their care providers. The government says existing Care Act legislation will be used to “ensure that self-funders are able to ask their Local Authority to arrange their care for them so that they can find better value care”. Quite what this will mean in practice is unclear – to date care providers have used self-funders to subsidise the fees charged to local authorities.

NHS-funded Nursing Care (FNC)

Currently the individual’s care/nursing home is directly paid £187.60 a week to meet the cost of care from registered nurses. This is not means tested and it appears that this payment will continue after October 2023. Full care costs are met under the NHS Continuing Healthcare (CHC) provisions, but these set highly restricted circumstances for payment.

MEETING THE COST

The Institute for Fiscal Studies (IFS) described the measures to meet the proposed costs of the reform as “A Budget in all but name”. The amount raised, which the IFS puts at
£14 billion a year, will be directed mainly at dealing with the NHS’s Covid related issues until the new care provisions start to operate in two years’ time. There are two tax increases to fund the costs involved.

National insurance contributions

As was widely trailed, the bulk of the cost will be met by increasing national insurance contributions (NICs). The mechanics of this are that:

• In 2022/23 there will be a new 1.25% ‘Health and Social Care Levy’(HSCL), operated as an increase on Class 1 (employer and employee) and Class 4 main and higher NIC rates. Thus, all the main in-work NIC rates will rise, although Class 2 (self-employed) flat-rate payments will be unaffected.
• In 2023/24, NIC rates will return to their current (2021/22) levels and the HSCL will reappear as a separate 1.25% charge. This separation is necessary to allow the HSCL to be charged on the earnings of employees and the self-employed who are over SPA – currently 66. At present employees and the self-employed past SPA do not pay NICs, although employers generally pay Class 1 NICs regardless of employee age.
• The current employer NIC reliefs, e.g. for apprentices under 25, will continue to apply.

NICs: 2021/22 – 2023/24

Tax Year	Employer* %	Employee %	Self-employed %
		Main	Higher	Main	Higher
2021/22: NICs	13.80	12.00	2.00	9.00	2.00
2022/23: NICs	15.05	13.25	3.25	10.25	3.25
2023/24: NICs                  HSCL	13.80   1.25	12.00	2.00	9.00	2.00
1.25	1.25	1.25	1.25
Threshold (21/22)	£8,840	£9,568	£50,270	£9,568	£50,270

* Under the Employment Allowance employers do not have pay the first £4,000 of Class 1 NICs unless the sole employee is a director OR total NICs for the previous tax year are £100,000 or more.

Dividends

From 2022/23, all dividend tax rates will rise by 1.25%. This move is designed to discourage private company owners from drawing remuneration as NIC-free dividends, but in practice it is likely to have the opposite effect. Including dividends also has the political benefit of raising some revenue (albeit a small amount) from the wealthy retired, who pay no NICs.

Dividend tax: 2021/22 and 2022/23

Tax Year	Basic rate %	Higher rate %	Additional rate %
2021/22	7.50	32.50	38.10
2022/23 onwards	8.75	33.75	39.35

SCOTLAND, WALES AND NORTHERN IRELAND

NICs and, to a lesser extent, dividends were chosen to fund the social care reform because, unlike income tax on earnings, they are not devolved taxes. As a result, residents of Wales, Northern Ireland and Scotland will suffer increased tax bills for a reform limited to England. However, the amounts raised will be returned to the devolved nations’ health and social care services (not the devolved governments) via the Barnett formula.

Investment Update – Dicing with the delta variant

With the UK leading the way in lifting its pandemic restrictions, the coronavirus Delta variant has put many countries on edge.

Nations experiencing a surge in the Delta variant of the coronavirus are in a race between vaccinating a majority of the public and getting ahead of the new strain in order to lift restrictions with confidence. The US, UK and EU are experiencing spikes in the rates of infections and there is some worry from economists about Europe’s previous positive outlook experiencing a setback due to the rapid spread of the variant across the Continent.

The UK’s ‘freedom day’ did go ahead on 19 July, albeit with businesses and local authorities given the ability to apply their own mandates in areas like mask wearing. The government’s aim to push on with the full reopening of society was boosted by the news from the Office of National Statistics (ONS) of a 356,000 surge in payroll figures for June. This is still below pre-pandemic levels, however.

Uncertainty about the Delta variant led to a volatile period for stock markets towards the end of the month. But fears were alleviated by the expectation of ongoing support from central banks as well as strong corporate earnings in both the US and Europe. In better news for UK markets, London overtook Amsterdam as the biggest share trading centre in Europe. This marks the first time London has taken the mantle since the conclusion of the Brexit transition.

The United Nations estimates that the financial toll of the coronavirus pandemic on global tourism could result in a $4 trillion loss to the global economy. Poorer countries are likely to be hardest hit, mainly because of low vaccination rates.

Inflation and consumer spending continue to rise
On both sides of the Atlantic, a surge in the growth of prices has given economists renewed concern about overheating economies. US consumer prices rose again in June and the inflation rate in the UK hit 2.5% in the same period (which is the highest level since 2018). The Bank of England’s monetary committee believes this is still a temporary phenomenon of strong growth, and expects things to fall back to pre-pandemic levels.

House prices in the US rose by over 14% in the year to April 2021, signifying the fastest rate of growth in 30 years. The American job market continued to regain ground, too, with a further drop in jobless claims in June and July.

China’s surge in stocks and bonds
Focus turned to China, following news that its economy expanded by 1.3% in the second quarter. This was mainly a result of retail sales, a growth in manufacturing and increased investment. The country’s exports also rose in June, along with GDP growth of 7.9%. Global holdings of Chinese stocks and bonds surged, as reported in July, by around 40% to more than $800 billion over the past year.

This is seen as a result of investors purchasing assets at a high rate, even accounting for the tense economic relations between China and the wider international community. China’s crackdown on tech companies like ride-hailing app Didi Global, which has listed its shares in the US market, is an example of causing an air of uncertainty for investors.

Key takeaways

• Countries experiencing a surge in the Delta variant of the coronavirus are in a race between vaccinating the public and lifting restrictions with confidence.
• London overtook Amsterdam as the biggest share trading centre in Europe.
• Economists are concerned about overheating economies with inflation spiking higher on both sides of the Atlantic.

How to plan for inheritance tax

Following the news that thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic, we explore some of the ways to navigate the complexities of inheritance tax.

The complex laws around inheritance tax (IHT) caught many people off guard during the Covid-19 pandemic. Along with the often-sudden loss of a loved one came the issues arising from IHT on gifts passed down to children and grandchildren.

This tax year marks the latest in a series where the number of people being charged IHT on gifts has increased. Since 2009, beneficiaries have paid 40% IHT on estates worth more than £325,000.

Gift your way to less inheritance tax

• There are ways to avoid passing on a large IHT bill to your family, whether it’s through gifting or charitable donations:
• You can give away assets or cash worth up to £3,000 a year (known as the annual exemption) with no IHT to pay regardless of the total value of your estate when you die.
• You can give as many gifts of up to £250 to as many people as you want each year – although not to anyone who has already received a gift of your whole £3,000 annual exemption. To make use of this exemption, it’s important to keep accurate records.
• If you are married or in a civil partnership, you can pass on your entire estate to your surviving spouse, tax free, when you pass away. Things could become more complicated, however, if your spouse was born in a different country.
• If you give a gift – of any amount – and live for a further seven years after the gift has been given, the beneficiaries will not have to pay any IHT if you pass away after that seven-year period.
• Leaving money to a charity means it’s free of IHT and could cut the tax rate on the remaining amount in your estate.

Transferring to a trust or pension
Setting up a trust to transfer some of your estate into for the benefit of your grandchildren is another way to reduce the IHT liability on your assets. However, the trustees could still encounter some income or capital gains tax.

While it may not be the most obvious choice, setting up a pension for your children or grandchildren could be a tax-efficient option. The fund will transfer to them when they turn 18 but they won’t be able to access the money until they’re much older.

As with anything tax-related, the rules are especially complex when it comes to where your inheritance goes and how much your beneficiaries will end up receiving. That’s why it’s so important to speak with your financial adviser to review all your options and find the most efficient ways to pass on your wealth.

Inheritance tax facts
Following the Budget in March, it was announced that thresholds will remain the same for IHT until 2026:

• For single people, the threshold is £325,000.
• For those who are married or in a civil partnership, the threshold is £650,000.
• Couples can also pass on their assets (like an owned home) worth up to £1 million in total if they leave it to children or grandchildren.

To learn more about how to make the most of your money this tax year and for more information about inheritance tax and your tax-free allowances, speak to your financial adviser.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen

Key takeaways

• The rise in deaths as a result of the pandemic has meant thousands more IHT payments.
• Following the Budget in March, thresholds will remain the same for IHT until 2026.
• It’s a good idea to explore ways to avoid passing on a large IHT bill to your family, such as gifting and charitable donations.

Social media post

Thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic. We explore ways to navigate the complex issue of inheritance tax and distribute your assets more tax-efficiently.

Thousands more people are expected to pay the standard 40% inheritance tax this year because of the effects of the pandemic.

We explore ways to navigate the complex issue of inheritance tax and distribute your assets more tax-efficiently.

Read our new blog “How to plan for inheritance tax”

Should we be concerned about rising inflation?

Most economists expect inflation to pick up over the next few months as lockdown restrictions ease and shops and restaurants reopen. But is this a cause for concern?

As lockdown measures begin to lift, financial markets are making their adjustments in anticipation of a rise in inflation, with bond yields picking up (meaning prices have fallen) and stock markets rotating from defensive sectors into cyclicals.

What is inflation?
Put simply, inflation measures the change in the prices of goods and services. If it rises then it takes more of our cash to buy things. We all experience inflation in our daily lives, from filling up our cars with fuel, buying groceries or using public transport.

In the UK, the official measure of inflation is the Consumer Prices Index. It’s published by the Office for National Statistics (ONS), which monitors what people are spending their money on, using a basket of everyday goods and services.

The ONS adjusts the basket from time to time to reflect our changing spending habits. During lockdown, there was a shift with products like hand sanitiser and hand wipes being added, and items like white chocolate and ground coffee dropping off the list.

Inflation is all an illusion… or is it?
It’s easy to ignore the impact of inflation on your finances. Most people’s spending habits this month compared with the same time a year ago would probably stick to the same patterns – regardless of inflation at the time – because the differences seem small and therefore wouldn’t affect the way they spend.

If you’re trying to save money though, it’s worth remembering that with interest rates currently lower than the rate of inflation, the real value of any cash savings is falling. In other words, the cost of living is increasing at a faster rate than your savings are growing, which means the spending power of your money is actually falling.

How will inflation affect investments?
Many people in the UK are preparing to spend the cash they’ve saved over the past year when the lockdown ends and shops, restaurants and entertainment venues reopen. Activity is likely to return to pre-pandemic levels and the expectation is that inflation is likely to pick up. Some economists are worried about inflationary pressures. In addition to this is the effect of government stimulus packages on the economy, which would provide another tailwind.

However, experts believe it’s likely to be a short-lived phase and should not pose a longer-term challenge to fixed income or equity markets. The Bank of England does foresee inflation rising towards the 2% mark but believes it will be a temporary phenomenon. Continuing deflationary forces like ageing demographics, technological innovation and global supply chains cast doubt over predictions of a new era of inflation.

Ultimately if you want to beat inflation in terms of finding some good returns on your savings, investing is the best option at the moment – due to cash savings rates being at such low levels.

One of the best ways to ensure your investments are given the strongest opportunity to navigate the effects of inflation on financial markets is through a global, multi- asset portfolio that’s actively managed by a professional team of investors. Speak to a financial adviser to find out more.

One of the best ways to ensure your investments are given the strongest opportunity to navigate the effects of inflation on financial markets is through a global, multiasset portfolio that’s actively managed by a professional team of investors. Speak to a financial adviser to find out more.

Key takeaways

• As lockdown measures begin to lift, financial markets are making their adjustments in anticipation of a rise in inflation.
• If you’re trying to save money, it’s worth remembering that with interest rates currently lower than the rate of inflation, the real value of any cash savings is falling.
• Investing in a global multi-asset portfolio, managed by a professional team of investors, is the best way to ensure your investments are given the strongest opportunity to beat the rate of inflation.

The pandemic has reportedly created 6 million accidental savers, but what’s the best way to use this extra cash?

The effect of the lockdown on millions of bank accounts has been to boost savings for people whose incomes have remained the same but whose spending has dropped.

With the prospect of life returning to a new normal, it’s a chance to think about how to make the most of these savings and build on them too.

Where were savings made?
Working from home meant the cost of commuting was put on hold. Holidays were not booked, and the closure of restaurants, bars and entertainment venues cut spending in those areas, resulting in slightly healthier current accounts.

All this, the Bank of England estimates, resulted in over £125 billion saved in 2020. Its survey does note that only a fraction of this is likely to be spent by households, suggesting a cautious approach.

This is understandable given the drop in income for furloughed employees, the loss of income for the unemployed and an unstable job market.

How to invest your lockdown savings
Leaving your savings in a high-street bank account won’t build much interest. But there are options out there for those who want better returns on what they’ve saved:

• Invest in a stocks and shares ISA – not only will any dividends paid to you be tax-free, but any gains will also be exempt from capital gains tax.
• Contribute to your private pension – this comes with the benefit of tax relief status on your contribution if you’re a taxpayer.

Other ways to make the most of your savings
Aside from investing, there are some useful ways to use any extra money saved during lockdown:

• Pay down debt – if you have lingering debts, whether they’re credit cards or student loans, consider using your extra cash to help eliminate them for good.
• Mortgage overpayments – you could make regular overpayments on your mortgage, reducing its overall term length and the amount you owe on the loan. Check with your mortgage company about their terms and conditions relating to overpayments.
• Build an emergency fund – this fund should contain enough to cover the essentials for a month (like bills, food and your rent or mortgage payments) if anything were to happen affecting your income. Consider opening a separate bank account — easily accessible to you — to store your fund.

A great place to start with all of these options is to create a budget that tracks your income every month compared to your spending, allowing you to work out how much you can put aside.

Our trusted financial advisers are here to help you find the best ways to invest your money to make the most of your savings — whatever your situation.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Key takeaways

• Millions of us became accidental savers during lockdown as a result of a sharp drop in spending and incomes remaining the same.
• There are several ways to make the most of your savings, which build better returns compared to leaving your money in your bank account.
• Consider using your extra savings to pay down debt or put them into an emergency fund.

Springing into action

Successful vaccination programmes are rolling out on both sides of the Atlantic, pointing to a brighter economic outlook.

The US and UK continued their rapid vaccine programmes to combat the coronavirus pandemic, while Europe lagged in its rollout, resulting in a resurgence of COVID-19 cases in some parts of the EU. As a result, the US and UK are likely to be able to reopen their broader economies sooner, while much of Europe still faces strict lockdowns.

Budget brings some relief
In his March Budget, Chancellor Rishi Sunak outlined stimulus measures to support businesses and workers through to the autumn. This much-needed spending foreshadows the largest hike in taxes for decades, with tax and spending decisions to total almost £60 billion in the 2021–22 fiscal year.

In addition, the government mapped out its plan for lifting lockdown restrictions and hopes to be in a position to remove all legal limits on social contact on 21 June. Pent-up demand is likely to push up the pace of economic growth for the rest of this year and in 2022.

US introduces new stimulus measures
In the US, Joe Biden’s $1.9 trillion stimulus passed through both houses of Congress in March. Under the legislation millions of Americans will receive one-off cheques for $1,400 and the unemployed will continue to receive $300-a-week top-ups until September.The OECD believes the stimulus will turbocharge the American economy and add a percentage point to global growth.

The US also leads the world in total coronavirus vaccines administered, suggesting the American economy is likely to begin its recovery process sooner than many other developed regions.

Inflation worries linger
Inflation worries hit bond markets, but the consensus is that any rise in inflation is most likely to be short lived. Government bond prices fell sharply (and yields increased), reflecting concerns about an increase in inflationary pressures as the global economy started to recover from the pandemic. Inflation is detrimental to bonds because it erodes the real value of the fixed interest rates they pay.

Investors are concerned about inflationary pressures as economies reopen, but we don’t expect the likely spike in consumer prices to persist. Inflation is likely to pick up as spending on services surges when lockdowns end, and government spending is another tailwind. But it’s likely to be a fleeting phenomenon and should not pose a longer-term challenge to fixed income markets.

Cyclical stocks are still attractive
Cyclical stocks remain in favour, as vaccines are administered and the economic outlook improves. Cyclicals like financial and energy stocks tend to perform well when the economy is expanding. But sectors that benefited during the height of the pandemic, such as tech, have fallen as prospects for the economy brighten.

This environment has benefited Europe’s stock market, which comprises fewer technology firms than America, and more cyclical companies such as banks andcommodity firms. The broad rotation away from tech towards cyclicals looks likely to continue.

Big money in digital artCommodity prices have risen this year, including copper and other metals used in electric vehicles, as well as oil. But gold lost some of its shine as a safe and steady investment, with its price falling steadily since the start of the year.

The Suez Canal was the scene of a stuck cargo vessel in March, blocking the vital shipping route for several days. Around 12% of the world’s trade happens via the Canal and it is thought that each day of the blockage halted billions of dollars in trade traffic.

In March, auction house Christie’s sold a digital piece of art by contemporary artist Beeple for $69.3 million – the latest example in the market for non-fungible tokens (NFTs). The artwork itself was composed as a single, unique and encrypted image file – the first sale of its kind by Christie’s, with bidding opening at $100. The eventual anonymous buyer paid for the work in Ether, a cryptocurrency.

Key takeaways

• The US and UK continued their rapid vaccine programmes to combat the coronavirus pandemic, while Europe lagged in its rollout.
• Investors are concerned about inflationary pressures as economies reopen, but we don’t expect the likely spike in consumer prices to persist.
• Cyclical stocks remain an attractive option for investment, as vaccines are administered and the economic outlook improves.

Social media post

• Successful vaccination programmes are rolling out on both sides of the Atlantic, pointing to a brighter economic outlook.
• Investors are concerned about inflationary pressures as economies reopen

Environmental, Social and Governance factors are becoming increasingly important to many investors, who want to align their financial decisions with their moral compass.

This is an area I discuss regularly with my clients and the PIMFA ESG academy provided a great addition to my knowledge base.

Complex tax-efficient investments such as Enterprise Investment Schemes (EIS) and Venture Capital Trusts (VCT) are a consideration for those who may be able to tolerate a high level of investment risk.

EIS and VCT are investment vehicles which encourage investment in small, unquoted trading companies in their early stages, who are typically trying to raise capital. These initiatives benefit the economy by promoting innovation amongst the small higher-risk business community, which in turn drives productivity, creates jobs and boosts economic growth.

Since their launch in the 1990s, they have become popular features on the investment landscape. Both schemes still provide an attractive proposition for experienced investors today, looking for the chance to invest in new businesses with the added benefit of portfolio diversification.

High volume of inflows to the small business sector

The schemes have proved successful in terms of generating cash for the small business sector. Data shows since their launch in 1994, over £20bn of funds have been raised through the EIS scheme, with 29,770 individual companies benefiting from investment. VCT have had a similarly positive impact, raising £8.4bn of funds since their creation in 1995.

How do they work and how much can I invest? In the case of the EIS, investors typically purchase shares directly in firms. VCT are listed companies that allow investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself, a similar approach to investment trusts.

Currently both offer 30% tax relief and tax-free capital growth, provided an EIS investment is held for at least three years and a VCT for five years. The maximum amount anyone can invest in an EIS is £1m per tax year, or £2m, as long as at least £1m of this is invested in ‘knowledge intensive’ companies. Individuals can invest up to £200,000 each fiscal year in new shares issued by a VCT.

Potential risks
While there are plenty of benefits associated with these schemes, they are only suitable for investors who are comfortable holding high-risk investments. This enhanced risk element stems from the fact that EIS and VCT invest in small, fledgling enterprises.

Although some of these companies will flourish and deliver strong returns, some will fail. As a result, these schemes have a high-risk profile, which is something any prospective investor needs to carefully consider. EIS and VCT investments are only suitable for a relatively small proportion of an investor’s overall portfolio. As these schemes invest in small companies with shares that are illiquid, they can be hard to sell.

As long as the risks are fully understood, these schemes are worth considering for investors seeking a long-term investment that maximises tax-efficiency and provides portfolio diversification.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes, which cannot be foreseen.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Key takeaways

• EISs and VCTs are investment vehicles which encourage investment in small, unquoted trading companies
• Both schemes provide an attractive proposition for experienced investors looking for the chance to invest in new businesses with the added benefit of generous tax breaks and valuable portfolio diversification
• The schemes offer 30% tax relief and tax-free capital growth, provided an EIS investment is held for at least three years and a VCT for five years
• The maximum amount to invest in an EIS is £1m per tax year, or £2m, as long as at least £1m of this is invested in ‘knowledge-intensive’ companies, while individuals can invest up to £200,000 each fiscal year in new shares issued by a VCT
• A benefit of EISs is their eligibility for Business Relief, meaning that if the investment is held for two years, and until death, the value of the assets will not be liable for IHT
• Although some of these companies will flourish and deliver strong returns, many will fail
• Suitable for investors who are comfortable holding high-risk investments
• EIS and VCT investments are only suitable for a relatively small proportion of an investor’s overall portfolio
• Provided the risks are fully understood, these schemes are worth considering for any wealthy investor seeking a long-term investment that maximises tax-efficiency and provides portfolio diversification.

US Election 2020

The office of US President carries huge influence all over the world and, as a result, the way the American electorate votes on 3 November will undoubtedly impact financial markets across the globe. US elections are always occasions of great political theatre but the 2020 campaign, played out with the backdrop of a global pandemic, has very much raised the bar. However, the outcome will determine the future path of the world’s largest economy for the next four years and that prospect inevitably leads to considerable speculation about what victory for each of the principal candidates might mean for the markets.

‘America First’
Four years ago, Donald J. Trump was elected the 45th US President riding on one simple slogan: ‘Make America Great Again’. His 2020 pitch is very much a continuation of his ‘America First’ principles, with Trump still vowing to bring jobs and manufacturing back to the US, protect US trade interests and continue his promotion of a hard-line immigration stance, including expansion of a US-Mexico border wall.

‘Build Back Better’
When Democratic Party nominee Joe Biden formally announced his candidacy, he stated two things that he stood for: workers who ‘built this country’ and values that can bridge its divisions. His economic proposals, dubbed a ‘Build Back Better’ plan, would see a large rise in infrastructure spending; while restoring healthcare rights, environmental protections and international alliances are among Biden’s other top priorities.

Who will triumph?
Statistically speaking, the weight of history is strongly in favour of the incumbent when it comes to US presidential elections – since 1932, almost three-quarters of sitting presidents have been re-elected. However, opinion polls have consistently put Biden ahead of Trump in most key battleground states and no other incumbent has secured re-election with an approval rating as low as that endured by the current President.

The COVID factor
But these are clearly not normal times and this year’s election is racked with much greater uncertainty than usual due to coronavirus. There is certainly clear blue water in terms of the candidates’ views on COVID-19 and the response each feels government should adopt in tackling the pandemic. In addition, it remains to be seen what impact, if any, the President actually contracting the virus and his subsequent recovery, will have on people’s ultimate voting intentions. As a result, despite the evidence from opinion polls, most pundits appear reluctant to call the election just yet.

Control of Congress
While most media attention has focused on the presidential race, US voters will also be electing new members of Congress and the ability of either candidate to enact legislation will ultimately be contingent on which party assumes control of the House of Representatives and the Senate. At the moment, Democrats control the House and Republicans the Senate and if this political gridlock persists, it would act as a restraint on any radical policy proposals put forward by either candidate. In contrast, a clean sweep for either the Republicans or Democrats would alter the political landscape significantly. With just a third of Senate seats up for grabs, the Democrats may have the tougher battle but as with the presidential battle, any outcome remains plausible.

Market impact
While the US population’s choice of Trump or Biden will inevitably affect future market direction, what that impact will be is perhaps less clear-cut and opinion is certainly divided amongst analysts. Some cite strong market growth in 2016 as evidence that a Trump victory would be best for the economy, while others suggest a Biden presidency would lead to more economic stimulus and thereby boost the markets, certainly in the short term.

Democrats versus Republicans
A number of market commentators have also pointed to history as a potential guide to the future. Interestingly, while ‘conventional’ wisdom may suggest the US stock market should perform better under a Republican president’s ‘business-friendly’ policies, the hard facts don’t support this crude partisan caricature. Indeed, in the period since the Second World War, the evidence clearly shows that stock market indices have produced better returns under Democratic presidents than their Republican counterparts.

Better the devil you know?
Some analysts have also shown that markets tend to perform better when the same President, or a candidate from the same party, retains control of the White House. Although there is no evidence to support whether such a relationship is causal or correlational, this could imply that a ‘changing of the guard’ may dampen market prospects.

Investment cycles
Other commentators point to market cycles and their alignment with the four-year election term when assessing likely post-election economic and stock market performance. Analysis by US economist Yale Hirsch, for instance, suggests that, in the first year of any administration, economic and stock market growth is relatively weak and remains below average in year two. Year three typically produces the best results, while market performance in year four also tends to be higher than the earlier years.

The way ahead
Speculation regarding the election’s potential market impact will inevitably continue as the presidential campaign reaches a crescendo in the coming week. However, whoever ultimately takes up residency in the White House, it’s important to remember that the basic rules of successful investment won’t change. The key to investing centres on creating a balanced portfolio that is capable of adapting to changing market conditions and it’s vital not to let short-term politically-charged events alter such an approach. Adopting a consistent investment strategy and not being blown off course by short-term scenarios is most likely to stand investors in good stead over the long term.

Recent research shows 1 in 10 UK adults with a pension (and not yet retired) have reduced or stopped pension contributions because of Covid-19.

• 1 in 10 UK adults have reduced or stopped pension contributions
• 1 in 4 workers are worried about paying for every day essentials
• 1 in 5 workers are worried about keeping up with mortgage or rent payments

The economic fallout resulted in a drop in income for many people meaning them having to decide between their short-term financial needs and long-term savings. The research revealed that almost a quarter of workers (24%) are worried about paying for essentials such as food or energy and a fifth (20%) are concerned about paying mortgage or rent.

Greater impact for those already struggling to save
Research has shown that the groups most affected financially by COVID-19 are those groups who may already be struggling to save for retirement: self-employed, younger workers (18—24 – year olds), women and part-time workers.

2 in 5 self-employed workers (43%) have seen their income drop and as a result almost one in five have needed to pause or reduce their pension contributions. This compounds an already existing problem with the self-employed being unable to save adequately for retirement – figures from 2019 show that 41% of the self-employed workforce were not saving anything for retirement.

The nation’s youngest workers are also likely to reduce their pension savings and of this age group, 7% were found to have moved their pension into lower-risk funds, despite being years away from retiring.

Another group already struggling to save are women, who are generally more likely to be in part-time employment or lower-paid jobs. Part-time workers also tend to be less well prepared for retirement and have been harder hit through job losses and furloughing than full-time workers, resulting in them being more likely to change their long-term savings habits than full-time workers (15% versus 6%).

Here to help
If you are considering reducing or stopping your pension contributions, contact us for help in reviewing your options. If you have already taken this step, it is important to review your retirement savings as soon as your situation improves. We are here to help and give you sound financial advice tailored to your individual needs.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

KEY TAKEAWAYS

• One in 10 UK adults, with a pension and not yet retired, have reduced or stopped pension contributions because of the pandemic
• Savers are having to decide between their short-term financial needs and long-term savings
• Almost a quarter of workers (24%) are worried about paying for essentials such as food and energy and a fifth (20%) are concerned about paying their mortgage or rent
• Those groups already struggling to save for retirement including the self-employed, younger workers (18 to 24-year-olds), women and part-time workers have been found to be most affected financially
• Two in five self-employed workers (43%) have seen their income drop, almost three times the proportion of employees (16%)
• The self-employed are unable to be included in auto enrolment
• 18 to 24-year-olds are likely to reduce pensions savings and 7% have moved into lower-risk funds
• Women and part-time workers have also seen a greater impact on their ability to save
• Contact us to review your options if you are thinking of changing your pension in any way
• If you have already done so, as soon as your situation improves, we can help you review your retirement planning.

If you are nearing retirement, you may have been particularly worried about the impact of recent market volatility on your pension assets and perhaps you are reassessing your retirement plans. There are several things to consider if you are planning to retire, which will depend very much on your own circumstances.

Since pensions freedoms were introduced in 2015, there are many more options available to retirees. Sudden retirements used to be the norm. People would stop work completely one day and be fully retired the next, perhaps receiving a regular income from an annuity. It is now possible to take a more gradual journey into retirement – making use of this flexibility in how you draw funds could be sensible in times of uncertainty.

Consider your timescales
If your planned retirement is 5 to 10 years away, there is a reasonable time for your savings to recover from the recent market volatility, but you should still take action:

• Review your retirement age.
• Consider increasing your pension contributions.
• Talk to us about your attitude to risk and appropriate fund switches.

If you have less than five years to retirement, your pension pot may not have been exposed to market volatility as much as you think. You may have benefited from a lifestyle option on your pension which is designed to ‘lock in’ investment growth as you approach retirement, by switching funds to less risky assets. This option is not suitable for everyone, particularly if you intend to keep your pension pot invested and use income drawdown to give you an income in retirement.

If you are retiring this year and your pension pot has taken a hit, you could consider delaying retirement until markets recover, but this may not be an option for everyone.

Advice is key
One of the biggest risks in uncertain times is to act in haste and make rash decisions.

Getting financial advice is crucial in making the right decision. We can help you consider all your options, including reviewing whether any other assets could be used to provide an income, so that your pension stays untouched.

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

KEY TAKEAWAYS

• If you are nearing retirement you may be worried about recent market volatility on your pension assets
• Advice will depend on your own circumstances
• Pensions freedoms have introduced more options, including a gradual step into retirement
• Timescales are important but options should be reviewed at each stage
• If retirement is 5 to 10 years away – review your pension ages, funds and consider increasing contributions
• If retirement is less than five years away – you may be locked into a lifestyle approach
• Advice is crucial if your only option is to retire this year and your pension pot has taken a hit
• Don’t act in haste – talk to us for advice.

Estate planning encompasses not only preparing your finances to ensure your assets are protected for your loved ones once you are gone, but it’s also about ensuring you have enough money to live on.

It starts with obtaining a comprehensive view of your assets. Assessing the value of your estate and ensuring the right documentation is in place is a first port of call (such as Wills, Lasting Powers of Attorney (LPA), and the formation of any relevant Trusts).

Valuing your estate
In order to establish the value of your estate, first calculate the total worth of all your assets, including your home, any other property, money and savings, shares and investments, business equity, cars, jewellery and other personal possessions. Determine the value of

non-monetary assets, by applying a realistic market value. Any gifts which incur Inheritance Tax (IHT) should be added to the value of assets. Then deduct debts and liabilities from this amount to establish the total value of the estate.

Deductions include any outstanding bills, mortgage debt, loans, credit cards, overdrafts, and funeral expenses.

Wills*, Trusts and LPA
Putting together a clear plan, that details your wishes regarding how you’d like your estate to be managed upon your death, will ensure when the person looking after your estate applies for probate they will know what your wishes were. A vital part of successful estate planning is ensuring you have a valid Will in place. Trusts are also a useful way of managing money or other assets on behalf of beneficiaries. There are various types of Trusts which provide an alternative to direct inheritance or transfer of certain parts of an estate, giving you control over who receives what and when. There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’ which are worth establishing at an early stage.

IHT
Estate planning can also help you reduce the amount of IHT payable. With expert planning, you can legitimately reduce the amount of IHT payable and pass on assets to your family as intended. For individuals, the current IHT nil-rate threshold is £325,000, and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. Beyond these thresholds, IHT is usually payable at a rate of 40%.

Since April 2017, there has also been a main residence nil-rate band, which applies if you want to pass your main residence to a direct descendant (e.g. child or grandchild). For the 2020-21 tax year, this allowance is £175,000. Added to the existing threshold of £325,000 this could potentially give rise to an overall IHT allowance of £500,000 for individuals, or £1m for those who are married or in civil partnerships. It is important to note larger estates will find residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m.

There is another simple way of passing money to the next generation which allows for gifts to be made from surplus income. Conditions apply, and advice would be needed to ensure the gifts are made in the right way. We can talk you through the options and help you to find the most appropriate choice.

We can help
We can give you advice to ensure your money ends up with the people you want, for the reasons you choose. We can show you how much money you will need, help you to pass on assets in the most effective way, and work with you to reduce or manage an Inheritance Tax bill.

*Will writing and LPAs are not a part of the Openwork offering. Openwork Limited accepts no responsibility of this aspect of our business. These products are not regulated by the Financial Conduct Authority.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

Key Takeaways

• Estate planning involves protecting assets for your loved ones and ensuring you have enough money to live on
• To value your estate, calculate the value of all assets, then deduct debts and liabilities
• A vital part of successful estate planning is ensuring that you have a valid Will in place.
• Trusts are a useful way of managing money or other assets on behalf of beneficiaries.
• There are 2 types of LPA, ‘health and welfare’ and ‘property and financial affairs’
• Estate planning can help you reduce the amount of IHT payable
• For individuals, the current IHT nil-rate threshold is £325,000 and £650,000 for a married couple or civil partners
• There is a main residence nil-rate band (currently £175,000), which applies if you want to pass your main residence to a direct descendant
• For larger estates residence relief is tapered, reducing by £1 for every £2 by which the net estate’s value exceeds £2m
• A simple way of passing money to the next generation is gifts made from surplus income
• We can advise you to ensure your money ends up with the people you want in the most effective way and work with you to reduce or manage an Inheritance Tax bill.