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what might be in the autumn budget?

In normal years, the Autumn Budget (formerly the Autumn Statement) is announced in November. However, with less than 6 months left on the countdown to Brexit, this year is far from a normal year.

At the end of September, Chancellor Philip Hammond revealed that the Autumn Budget would be released on 29 October which is also, unusually, a Monday – traditionally budgets are announced on a Wednesday. Since the Wednesday would’ve been Halloween, perhaps the Chancellor moved the budget forward by two days to avoid a potential Budget horror show.

Hammond’s Twitter feed indicates that we can expect the Chancellor to balance the books. Aside from this there has been little concrete information about what the Budget might contain. However, Hammond has given us a few hints:

The end of the freeze on fuel duty
It’s likely that the eight year freeze on fuel duty will come to an end this year. Last month, Hammond said that the freeze on fuel duty has meant the Government has “foregone” £46 billion in revenue and, if the freeze continues, will miss out on £38 billion more.

NHS spending
One of the Chancellor’s main concerns will be finding the money to fulfil Theresa May’s pledge to pump an extra £20 billion into the NHS by 2023. The prime minister herself admitted that this would require tax hikes, but was unclear as to which taxes would be raised.

Digital tax
At the recent Tory conference, Hammond said that Britain will impose a new “digital service tax”, even if other countries fail to follow suit. However, what this tax might look like is currently unclear.

He called for a reform of the international tax system for an era where digital companies account for much of global business, with Britain leading the way. Business leaders have mentioned that such a tax could compromise the UK’s reputation as a good place for digital companies to do business.

Of course, what will have the largest bearing on the eventual success of any changes to the budget is any Brexit deal. A good Brexit deal will boost growth and balance public finances without the need for major tax hikes.

We eagerly await the Chancellor’s Budget at the end of the month.

Sources
https://www.independent.co.uk/news/uk/politics/philip-hammond-tax-cut-self-employed-scrap-conservatives-national-insurance-contributions-nic-class-a8526236.html
https://www.telegraph.co.uk/politics/2018/09/11/chancellor-hints-fuel-duty-rise-fund-nhs-campaigners-warn-struggling/

financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

3 top tips to prepare your kids for independent travel

It’s one thing to travel with your children or grandchildren and help them realise an appreciation for seeing the world. To prepare them to navigate that world on their own and to take control of their own adventures, is another thing entirely, but it’s not impossible.

Let them take the reins when you plan your next trip – With your years of experience and being a parent or guardian, it’s easy to assume that you’re better off taking care of all the planning yourself. You know what you like, you know where to look and you know how to make it cost effective – you’re the one footing the bill, after all. The chances are, though, that the only reason you are adept at the process is because you’ve done it before, so give them some first-hand experience and the opportunity to learn for themselves.

– Give them a helping hand, of course, show them where to find airfares and different accommodation options. Let them browse Airbnb for holiday rentals and experiences.
– Above all, keep an open mind; they’ll likely have different search criteria and priorities to you, so you never know what little gems they’ll unearth

Give them responsibilities once you arrive – Getting the trip booked is just the beginning. You can write as detailed an itinerary as you like but the map is not the territory and the real experience is found on the ground. You’ll instinctively want to take control of organisation and logistics but getting the kids involved can be an extremely valuable experience. Let them choose the route you take and suggest that they ask for directions from a local if you get a bit lost. Get them to buy the train tickets – if you’re feeling really brave maybe even let them look after your room key! The sense of responsibility will make them feel like they’re contributing and if something doesn’t go quite to plan, that can be a learning experience too…

When things go wrong, stay calm – If everything has gone smoothly on a trip then you probably haven’t left your hotel room. More often than not you’re going to run into awkward situations at least once. Something as simple as missing a bus, particularly in warmer climes where the bus stop might be lacking in shade, can lead to frustration.

– You may feel inclined to panic or shield your children from it entirely, pretending that everything is going along as expected. Your best bet really is to be honest and stay calm. Learning to ‘go with the flow’ and accepting that sometimes plans need to change is essential to successful and happy travelling.
– Sometimes a spanner in the works can be a great thing; you may have missed the last bus to the museum but if you hadn’t, you wouldn’t have found that local tavern with the paella you’ll
never forget. Those statues have been there for hundreds of years – we’re sure they’ll wait until tomorrow.

   Sources:  https://www.wanderlust.co.uk/content/how-to-teach-your-child-to-travel-independently/

Is the bank of mum and dad ‘feeling the pinch’?

The bank of Mum and Dad’ will lend enough money to the next generation of UK homeowners in 2018 to make it the equivalent of a top 10 Mortgage Lender. With £5.7bn expected to be handed over to help family members get a foot on the property ladder this year, you could be excused for thinking that things were on the up. Everything is relative, however, and when compared to 2017’s enormous lending figures of £6.5bn, the numbers tell a different story.

L&G are still expecting more than a quarter of home buyers to be getting financial assistance from relatives, with the amount actually seeing a small increase from 25% to 27%. So with close to 317,000 housing transactions expected to take place with parental help this year, how do we account for the £800m drop in lending?

The short answer is that, due to the current position of the economy as a whole, people are feeling the pinch. Although the sheer volume of individual transactions is increasing, the amount lenders are able to provide is going in the opposite direction. In 2017, the average contribution was £21,600, in 2018 that figure is expected to be down 17% at £18,000.

Interestingly, although unsurprisingly, this is a regional phenomenon, with a higher percentage of buyers in London (41%) receiving help from their relatives.The age of the buyer also affects the likelihood of lending, but by no means is it exclusive to younger buyers. Three in five under-35s are expected to receive help, but so are 20% of those between the ages of 45 and 55.

We’re also seeing a growing trend of parents ‘gifting’ their children money that they would otherwise have received years later through inheritance. Not only does this make the money less likely to be liable to inheritance tax, it also means that the buyer can get on the property ladder earlier and thus avoid future increases in house prices. For many in financially comfortable positions, this may well be an avenue worth considering.

https://www.bbc.co.uk/news/business-44283507
https://www.bbc.co.uk/news/uk-37220688

4 steps to keep track of your pension

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Sources
http://www.independent.co.uk/money/modern-careers-risk-billions-in-lost-retirement-savings-a7545091.html

house prices to slump in 2017?

Recent figures suggest that house prices are set to slow during 2017. Property prices grew by 5.7% in the year to the end of January, slower than the annual growth of 6.5% in the previous month.

In January, the average UK home was valued at £220,260. Whilst prices in the three months to the end of January were higher than in the previous three months, the figures show that in comparison to the same period one year before, growth was beginning to slow, coming in considerably lower than the 10% peak of March 2016. In fact, compared to December 2016, prices in January 2017 dropped by 0.9%. The figures mean that the property industry now has a decidedly mixed outlook for the year ahead.

“January is always a lethargic month for UK property as a result of the Christmas break”, said founder of eMoov.co.uk Russell Quirk, “and so any fall in house prices at this time of year should be taken with a pinch of salt, rather than a handful of panic. Had any other market around the world been subject to such a sustained period of scaremongering and uncertainty amongst buyer and seller as the UK market has in the last year, I expect it would be a different story to the one we are seeing here.”

However, some estate agents have warned that concerns over rising inflation and the effect it will have on both interest rates and general living costs are impacting upon the decisions the UK public is making regarding buying and selling property. There are also worries over the tightening of mortgage criteria, as well as the focus on affordability.

Whilst prices have been kept up by both lower rates of interest and the relatively small number of houses on the market, other factors will work to slow price growth throughout this year. These are likely to include the weakening of economic growth, the increasing pressure felt on spending power and restrictions to affordability, making the outlook for the property market in 2017 considerably uncertain.

Sources
http://www.bbc.co.uk/news/business-38891777

 

ernie to get slimmer

Premium bonds celebrated their 60th anniversary last year; whilst they’ve remained popular throughout that time, it’s not hard to see that what they offer is closer to a lottery ticket than a viable investment opportunity. The chances of winning the jackpot is 26 million to one, and as all the interest generated in money invested goes to the prize fund you won’t see any return on your investment unless you’re one of the lucky few to bag a top prize.

However, they’re set to become even less attractive later this year, when the chances of winning the bigger prizes will become slimmer still. National Savings and Investments (NS&I) has announced that from May 2017, the estimated number of tax-free £100,000 prizes will fall from three per month to just two. The £25,000 prizes will also be reduced, going from eleven to nine each month. The amount of monthly £10,000, £5,000 and £1,000 prizes is also set to go down with the total prize fund shrinking from £69.5 million to £63.8 million.

The reductions are due to NS&I making cuts across a range of saving products to reflect market conditions. Direct ISA and Direct Saver accounts will see interest rates cut from 1% to 0.75% and 0.8% to 0.7% respectively at the same time.

Whilst a drop in the number of big prizes is undoubtedly a disappointment for savers, the changes do little to change the positives and negatives of premium bonds overall. As an investment opportunity they offer no guarantees but the fact that any money put in is backed by the treasury means your investment is fully protected.

It’s not all doom and gloom for NS&I products, however. Last November, Chancellor Philip Hammond announced a new savings bond would become available in spring 2017, offering what was described as a “market-leading” rate of approximately 2.2%. The precise rate is set to be confirmed soon, and the three-year bond will be available for anyone over 16, allowing them to invest up to £3,000.

Sources
http://www.bbc.co.uk/news/business-38893452

which is best? save or invest

Whilst you might expect an increase in the cash and investment ISA limit to be welcomed, at least one dissenting voice has come from Steve Webb, former Pensions Minister and current policy director at Royal London. Webb has warned that the rise in April from the current annual limit of £15,240 up to £20,000 could encourage poor long-term investment choices.

The criticism is aimed at the cash element in particular. Webb has described cash ISAs as useful as a ‘rainy day fund’ but unsuitable as a way to help invested money grow. As such, he’s advised that a more appropriate investment limit for cash ISAs would be £5,000, just a quarter of the proposed new limit.

A report from Royal London backs up this view. Whilst cash ISAs continue to grow in popularity, the returns they offer often pale in comparison to many investment opportunities. Had all the money put into cash ISAs over the past decade been invested instead, the report estimates that savers would now collectively have £360 billion, significantly more than the actual figure of £250 billion. Inflation has also taken its toll on the value offered, with £26 billion worth of savings wiped out in the same period, thanks to cash ISAs failing to keep pace with inflation rates.

Most of us manage our finances in numbers a lot smaller than billions, however, so what does all of this mean? The latest figures show that £1,000 paid into a cash ISA a decade ago would be worth under £900 in today’s money. In contrast, had that money been invested in a typical multi-asset fund where money is spread across property, bonds and shares, it would be worth over £1,500 today.

Whilst this suggests that those looking to grow their money should opt for investments, it doesn’t take into account the safety of cash in the short term and the convenience of having money readily available in an ISA. The most important factor in making decisions around your finances is to think proactively.

Think about your individual circumstances before you opt to tie your money up in an investment but, equally, don’t simply place it all in a cash ISA if you can afford not to touch your savings and allow them to grow. 

Sources
http://www.thisismoney.co.uk/money/saving/article-4176724/Cash-Isa-limit-cut-argues-Steve-Webb.html

what is the real rate of inflation?

The current projected figures for 2017 see inflation set to grow by between 2.5% and 3%, but there are already reports surfacing that this figure is misleading, with most families set to experience much higher increases than this, thanks to the ‘real rate of inflation’. But what does that actually mean and why is the real rate so different to the projected figure?

The official rate of inflation has been calculated by the government using the consumer price index (CPI) since 2003. The CPI is worked out by looking at the prices of set goods and services considered by the Office of National Statistics to be representative of how an average person in the UK spends their money. However, as with any average measure, some people will inevitably experience their own rate of inflation above or below the CPI.

Whilst the CPI was adopted due to its similarity to how other countries work out their rates of inflation, thereby making it easier to compare UK inflation to that of other nations in a meaningful way, it doesn’t include a number of key figures in its calculation. For example, CPI doesn’t include housing costs or council tax increases, both of which have seen faster increases than inflation for a number of years. The previous official measure of inflation, the retail price index (RPI), did include these and has generally been around 1% higher than CPI over the last couple of years. RPI is also important as, whilst no longer classified as a national statistic, it is still regularly used by employers and trade unions when negotiating wages.

There’s also the variation in what different social groups will spend their money on. Food, energy and petrol prices have individually seen much sharper rises than the CPI, which means that people who spend more of their money on these goods and services will experience a considerably higher individual rate of inflation than the national average.

So whilst the official rate of inflation is forecast to be around 3% this year, the real rate of inflation is set to rise by a greater amount than that – which unfortunately means that many families will find their income squeezed a little more for the foreseeable future.

interest rate update: will low rates stay for another three years?

The decision by the Bank of England to cut interest rates to a record low of 0.25% in August last year was the latest blow for savers who hold a high percentage of their assets in cash. 2017 brings fresh economic uncertainty both at home and around the world through the triggering of Article 50 following the Brexit vote and the inaugural year of President Trump’s time in the Oval Office, leading many to question just how long the current rate of interest will be in place.

One prediction has come from Howard Archer, IHS Markit’s chief European and UK economist, who recently stated: “It looks more likely than not that the Bank of England will keep interest rates unchanged, not only through 2017 but maybe out to 2020”. If Archer’s forecast is accurate, it could mean another three years of low yields for savers. Conversely, those looking to borrow would likely be overjoyed, as the cost of loans and mortgages could continue to fall.

Others have been less pessimistic, but still see a rates rise in 2017 as an unlikely proposition. One senior analyst at a top financial services company puts the chance of interest rates increasing this year at just one in three. “We are getting another year of ultra low interest rates”, he added. “Rates may then start to go up but they are going to go up very slowly. We are probably going to be hereabouts for some considerable time. It depends on how next year turns out in terms of economic growth.”

There have been predictions that governor of the Bank of England Mark Carney will have no choice but to raise rates this year due to the economy recovering far better than expected following the Brexit vote. One senior figure believes that a continued increase in consumer unsecured lending would lead to the Bank of England increasing rates in 2017 to avoid the creation of another credit bubble.

All of which makes it difficult to say with any certainty how long the 0.25% rate will be in place. Whilst it now looks fairly certain that any plans to lower rates even further have been abandoned, the unpredictable nature of the UK economy means that, when it comes to a rates increase, savers may simply have to wait and see what 2017 has in store.

Sources

http://www.thisismoney.co.uk/money/news/article-4080276/Savers-set-three-years-misery-analysts-predict-rates-stay-record-lows.html
http://www.whatinvestment.co.uk/mark-carney-might-raise-uk-interest-rates-2017-2553174/
http://www.express.co.uk/finance/city/743836/interest-rates-when-rise-UK-rate-Bank-of-England-latest-predictions-forecasts