Financial planning spring bulletin 2024

Private healthcare options are on the rise as more people are looking at alternatives to the NHS through personal or workplace provision.

Protection and insurance products can provide access to some primary healthcare options, such as GP and dental services, and often contribute towards the cost.

There are significant differences between providers and products in price, coverage and exclusions, although none replicates the range of services available via the NHS. Understanding the details of each policy is key to finding the right option.

• Cash plan policies: Pay out a fixed contribution towards routine healthcare costs, such as dental and optician fees.
• Income protection: An insurance policy that pays a fixed monthly income if you are signed off work through ill health. It can ensure essential bills are paid during a period of illness.
• Critical illness: Pays a lump sum on the diagnosis of one of the serious illnesses listed on the insurance policy. The conditions will include most cancers, heart disease and stroke.
• Private medical insurance: Typically covers the cost of private diagnostic tests, consultations and hospital treatment. Emergency cover is not included, nor is treatment for existing or ongoing problems such as asthma and diabetes, nor pregnancy-related complications.

Many of these products now also offer a range of additional services, often at no extra cost. This can include virtual GP services, mindfulness apps and online counselling, plus information on lifestyle issues – for example diet, smoking or exercise.

While these products can of course be bought individually, employers are increasingly offering some form of health benefit to their staff to improve staff retention and reduce long-term sickness absence.

If you need to access health insurance at any point, or are looking to improve your health, it is worth checking what benefits may be available through your workplace, including access to healthy lifestyle services.

Interest rates have risen for two years straight, but the outlook indicates a change of direction in 2024.

The Bank of England raised its bank rate at fourteen consecutive meetings between December 2021 and August 2023, taking it from 0.10% to 5.25%. There is now an expectation, not disputed by the Bank’s Governor, that the next move will be downwards. The pattern of rise-and-stall has been mirrored by two other major central banks: the US Federal Reserve and the European Central Bank (ECB).

Although central bank rate have significantly increased, many banks have still not passed the full increases along to their customers. If you are not earning around 5% on your cash deposits, please speak with us to discuss your options.

Markets anticipate cuts

The yields on 10-year government bonds have fallen since last autumn in the UK, US and Europe and the knock-on effects are visible in the UK mortgage market, where new, fixed-term rates have started to drop. NS&I has also reacted, making a range of rate cuts, including 0.25% off the Premium Bond prize rate.

If you have been holding cash deposits, either directly or via money market funds, you should have benefited from the rise in rates. However, unless your deposits were earning on average within 0.7% of bank rate net, they will have lagged behind inflation. In fact, in the last 15 years it has been rare for the bank rate to be higher than the CPI inflation rate. That devaluation, combined with the likely fall in rates, means that the amount of cash you hold on deposit needs a review.

Talk to us about your options now: deposits may be less attractive once the rates begin their descent.

Mortgages

While rates coming down may not be popular among savers, it will come as a relief to those on variable mortgage rates or approaching the end of their fixed term.

Market sentiment suggests we may see the first base rate reduction towards the back end of the year and in turn, interest rates should fall accordingly.

In the meantime, there is much debate amongst lenders to the exact date and so, rates continue to fluctuate but overall on a downwards trend.

We have been securing mortgages 6 months before the product end date to lock in today’s rates. Where rates increase, the secured rate will apply. Where rates fall further, we can lock in the improved rate.

It is key to start looking far in advance of your term ending, and considering the whole of market is vital.

Whether you are looking for funding for residential, commercial or specialist purchases, we have all bases covered by our mortgages and property finance experts.

It is not only fictional multinational media empires that need to consider future ownership and control.

In 2023, the question of how to transfer control of a large, high profile family organisation gripped attention. First the Sky Atlantic series, Succession, drew us in, followed by its inspiration, the transfer of the Fox and News Corporation reins by Rupert Murdoch to his son, Lachlan.

What happens when ownership changes is not only a concern for the likes of multinational empires, real or otherwise. If you are a private company shareholder/director or a partner in a partnership, business succession is something that should matter to you. For example, what would happen if one of the fellow shareholders in your company or partners in your partnership suddenly died or suffered a disabling accident?

The way to deal with such potential business threats is to have a plan in place before disaster strikes and, equally important, to ensure the money is there to execute it; one without the other can be a minefield. Take the example of a suddenly disabled partner. Your agreement may require the partner to retire in such a situation, but unless the remaining partners have the resources to buy out their colleague, a new partner may need to be found or the business might even have to be sold. What you and your business associates need to protect against such situations are:

• appropriate, tax-efficient agreements to deal with the sale of interests on death and serious illness; and
• life and health insurance cover to fund the purchase costs those remaining in the business will face.

For advice on both aspects, talk to us today – as Succession showed – you never know what tomorrow might bring.

Savers need to build up more funds if they want to secure a decent standard of living in retirement.

An independent pensions body has updated its calculations on how much money people need to fund a basic, moderate or comfortable lifestyle in retirement. Rising food and energy costs, plus the fact more people want to socialise with family and friends post pandemic, has pushed up the cost of a ‘moderate’ retirement by £8,000, to £31,300 a year – with couples looking at a combined cost of £43,100 a year. For more, income required will be significantly higher.

As the name suggests, this is not funding a life of luxury. The Pensions and Lifetime Savings Association (PLSA) says this covers one week-long holiday in Europe each year, running a small car and modest amounts for socialising, alongside essential bills.

Moderate retirement costs increase most

The costs of ‘minimum’ and ‘comfortable’ lifestyles have also increased – although not by as much in percentage terms. The PLSA estimates an individual needs £14,400 a year to fund a basic lifestyle and £43,100 for a more ‘comfortable’ retirement.

These are ballpark figures, and individuals’ spending requirements will vary. But the numbers can be useful as part of a wider pension planning process. Remember, not all this cost needs to be met by private pensions, as from April this year those qualifying for the full state pension will get £11,502 a year, although that alone is not enough to meet basic living requirements according to these calculations.

It is never to early or late to start planning for retirement. Contact us for more information.

New online trading data sharing rules

If you sell things online using sites such as Ebay or Vinted, or rent out your home via Airbnb or similar sites, those platforms will now automatically share data with HMRC. The rules are designed to ensure that those earning via digital platforms are fully declaring their correct income and tax. There is an ‘occasional seller’ exclusion for those making less than 30 sales under the value of around £1,700. The rules came in from 1 January 2024, but the relevant platforms will start reporting data from 1 January 2025, so there’s time to understand if you could be affected. Our Tax Dispute Resolution Partner John Hood, discusses the recent HMRC announcement regarding online traders and platforms and clarifies who this announcement is primarily aimed at, click here for more.

Student loans hit by marginal tax rates

Last December’s Scottish Budget introduced a new ‘advanced’ 45% income tax rate covering taxable income between £62,430 and £125,140. One unfortunate consequence of the change was to create a potential marginal ‘tax’ rate of 78.5% on earnings between £100,000 and £125,140 for graduates still repaying their student loans (67.5% effective income tax rate + 9% graduate repayment + 2% national insurance). If you think you have escaped this by living outside Scotland, be warned – the equivalent elsewhere in the UK is 71%.

Entitled to a bigger State pension?

HMRC is contacting thousands of people by post, mainly women, to highlight that they may be eligible for a higher State pension than they realise. An error in national insurance records has meant those eligible may have missed out on a provision called ‘home responsibilities protection’ between 1978 and 2010. The letters are going out in phases and explain how to check for eligibility and then claim, potentially adding thousands of pounds to State pension entitlement. It’s not a scam, but you can check and confirm with HMRC if you receive a letter.