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Focusing on self-actualisation in retirement

To enjoy a financially secure retirement, it’s important to spend time doing some in-depth thinking well in advance to determine your goals and requirements in order to achieve the lifestyle you dream of. You need a robust financial plan.

When thinking about the income you’ll need in retirement, many people find it helpful to think in terms of Maslow’s renowned Hierarchy of Needs. His pyramid has various levels of need that human motivations move through, starting with the physical requirements for human survival, and ending with mankind’s highest aspirations, reaching ‘self-actualisation’ at the apex of the pyramid. Adapting this approach to personal finance was pioneered in the US. Using this hierarchical approach in a personal finance context can be a useful tool in deciding how to plan your income in retirement.

Survival income

This is the base of the pyramid and consists of the income you need to pay all your basic household expenses, your regular bills and running costs.

Safety income

The next layer up, this is the amount you might need to meet life’s unexpected events, such as health and later-life care costs, loss of income and any emergency financial help you might want to give your family.

Freedom income

This layer is all about assessing the likely cost of doing all those things that you never had time to do before you retired, including travel expenses, major purchases or indulging yourself in other ways.

Self-actualisation

Many people add a gift layer representing money they want to pass on to children and grandchildren during their lifetime, and some add a dream layer, their ultimate ‘bucket list,’ to the very top. The apex of ‘self-actualisation’ represents the ultimate in reaching your full potential, being self-fulfilled and enjoying peak experiences.

Maslow described this level as the desire to accomplish everything that one can, and “to become everything one is capable of becoming.”

By viewing your retirement finances in this way, you can gain a clear picture of how much money you’ll need to help you enjoy the retirement you’ve always wanted. We can build a clear and comprehensive strategy.

*Content is for informational purposes only.

A plan to grow the economy

With the Office for Budget Responsibility (OBR) predicting the UK economy will expand by 0.8% this year, and by 1.9% in 2025, Jeremy Hunt delivered his last Spring Budget ahead of the General Election, highlighting reforms aimed to ensure the tax system is simple, fair, keeps pace with economic developments, and supports public finances.

Expectations are that the rate of inflation will fall below the Bank of England’s 2% target level in “a few months’ time,” with the OBR forecast showing the government is on track to meet its fiscal rules to grow the economy, reduce debt and halve inflation.

Changes to National Insurance (NICs)

In line with speculation, following reductions to NICs announced during the Autumn Statement, the Chancellor announced further changes, specifically a reduction in the main rate of employee NICs by 2p in the pound from 10% to 8%, and a further 2p cut from the main rate of self-employed NICs, meaning the main rate of Class 4 NICs for the self-employed will reduce from 9% to 6%.

UK savings in focus

In order to promote more investment in UK assets, the government announced the introduction of a UK Individual Savings Account (ISA) with a £5,000 annual allowance in addition to the existing ISA allowance of £20,000. It will be a new tax-free savings product for people to invest in UK-focused assets (a consultation regarding implementation will be running to 6 June 2024). And a British Savings Bond will be delivered through National Savings & Investments (NS&I) in April 2024, offering a guaranteed interest rate, fixed for three years.

The 2024/25 tax year JISA allowance remains at £9,000.

IHT consultation

It was announced that there will be a consultation on moving to a residence- based regime for Inheritance Tax (IHT).

No changes to IHT will take effect before 6 April 2025, nil-rate band remains at £325,000 and the main residence nil-rate band at £175,000, with taper starting at £2m (estate value). From 1 April 2024, personal representatives of estates will no longer need to take out commercial loans to pay IHT before applying to obtain a grant on credit from HMRC.

Reviewing non-dom status and Child Benefit

In addition, it was announced that the non-dom status will be replaced by a new residence-based system from 6 April 2025. The government also announced an intention to move to a residence-based regime for IHT, with plans to publish a policy consultation on these changes, followed by draft legislation for a technical legislation, later in the year.

Changes to the Child Benefit system included an increase to the threshold for the High Income Child Benefit Charge to £60,000 in April. The rate of the charge will be halved, so that Child Benefit is not lost in full until an individual earns £80,000 per annum, and by April 2026, the Child Benefit system will be based on household rather than individual incomes.

And pensions…

The government remain committed to the pensions Triple Lock. The value of the new State Pension will increase to £221.20 per week in April, while the basic State Pension increased to £169.50 per week.

*Content is for informational purposes only.

Powering up your pension this year

Paying a lump sum into a pension can be a particularly effective way to save for your future. If you have accumulated extra money from a windfall, work bonus or through saving, now could be the ideal time to power up your pension with a single contribution.

Above and beyond

One-off pension payments are permitted at any time, with the government encouraging people to do so through tax incentives. Making a single contribution basically enables people to go above and beyond their regular commitments, and thereby move closer to achieving their ultimate pension saving goals.

Tax efficiency 

Tax relief is available on contributions up to a maximum of £3,600 a year or 100% of earnings, whichever is greater, with the level of relief dependent on a person’s marginal rate of Income Tax. For instance, a £1,000 lump sum contribution could effectively cost a higher rate taxpayer just £600, after receiving £200 basic rate tax relief from the government and claiming £200 in additional relief from HMRC.

Allowances

For 2023/24, the annual contribution limit for tax relief purposes is 100% of a person’s salary or £60,000, whichever is lower, although unused allowance from the previous three tax years can be carried forward. If you want to make the most of your available allowance(s), get in touch and we’ll help you power up your pension – www.audleywealth.com/contact-us

*The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

What’s your retirement dream?

Research has revealed that the ultimate retirement dream is actually very simple – financial security for the rest of your life. This is according to a survey by Legal & General (2023) , which questioned 2,000 respondents aged 50 and over on their aspirations for later life.

Hopes and dreams

Nearly all the respondents to the survey (94%) said that financial security was one of their biggest retirement wishes. Other retirement aspirations included: 

  • Being able to maintain one’s desired lifestyle (94%) 
  • Spending time with family (90%) 
  • Being able to afford care if required (81%) 
  • Being able to afford big family events, such as weddings (73%) 
  • Travelling (72%)
  • Being able to support family financially (69%).

However, 41% of retired respondents admitted that they’ve ended up needing more money than anticipated.

Avoiding the shortfall 

Due to rising life expectancies, many people can expect to spend several decades in retirement. We therefore need to give careful consideration to the below:

  • How much do you need? – What level of income will you need for your preferred lifestyle? 
  • What do you have? – Let’s take stock of your pension(s), savings and investments, and any other assets you currently have. 
  • When do you want to retire? – This will give you an idea of how long you have to save before entering retirement. 
  • Think about tax – There are serious benefits to properly utilising the tax allowances available to you.
  • Take advice – Research by Standard Life (2023) has revealed that people who take financial advice can expect to retire three years earlier on average. Advised consumers also believe they can fund their desired lifestyle for six years longer than their non-advised counterparts. 

Achieve the dream in 2024 

Make 2024 the year you make your retirement dreams come true. We can help you work towards enjoying the retirement you’ve always dreamed of.

*The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Autumn Statement Housing update

Chancellor of the Exchequer Jeremy Hunt delivered his Autumn Statement on 22 November, with a host of announcements on personal taxation and measures for business. Housing was largely absent from the key fiscal event, but there are a couple of points to be aware of. 

 

Mortgage guarantee scheme extended 

This scheme, introduced in March 2021 with the aim of helping more buyers get on the property ladder, was due to end in December this year, but it will be extended by 18 months, until the end of June 2025.

 

The scheme aims to help borrowers with smaller deposits to take out a mortgage with a 5% deposit on a home worth up to £600,000. The government gives a partial guarantee to the mortgage lender of up to 15% if the borrower defaults on their repayments, giving lenders the confidence to offer higher loan-to-value mortgages. 

 

The scheme is available to those buying a home they plan to live in using a repayment mortgage. It does not apply to buy-to-let investments, or to those purchasing a second home or holiday home. Only loans set at a maximum of 4.5 times income qualify for the scheme.

 

New permitted development rights 

The Chancellor announced plans to scrap planning permission for property owners wanting to convert one house into two flats. It will only be allowed in cases where the appearance of the home on the outside does not change. This could be good news for property investors and helping to meet ongoing demand for rental accommodation.

 

Housing and planning investment
During the Statement, an additional £32m was pledged to unlock development of thousands of homes across the country, including funding to tackle planning backlogs in Local Planning Authorities (LPA).

 

*Content is for informational purposes only. As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

 

Planning to secure your financial future

Over the past 12 months, the cost-of-living crisis has put significant pressure on household budgets and knocked many people’s confidence in their future financial prospects. Research, however, shows that planning is a key driver of positivity about our financial futures; so, now seems the perfect time to take stock of your finances and formulate a plan to help you achieve your retirement goals.

Plan, plan, plan

Although decisions around retirement are arguably the most critical people have to make during their whole lives, research (Nucleus Financial Platforms, 2023) suggests only half of over-50s with pension entitlements other than the State Pension have actually formulated a detailed plan. Perhaps unsurprisingly, it also found that those with a plan were much more confident about securing a comfortable retirement than those who do not have one. 

Gender gap

The research found clear evidence of a gender gap with men generally more confident about their prospects for a comfortable retirement than their female counterparts. It also found that the cost-of-living crisis has been a key driver of low confidence, with half of the sample stating that it has either slightly or significantly worsened their chances of a comfortable retirement.

Triple default trap

People without a plan are also more likely to get stuck with their default pension settings. Recent years are thought to have seen a sharp rise in the number of triple defaulters who ‘set and forget’ their pension choices, with millions of auto-enrolled 32-40 year olds failing to update their contributions, investment choices or target retirement age. Even relatively small tweaks to one or more of these default choices could potentially boost a pension pot by thousands of pounds. 

Here to support you

The evidence clearly shows that formulating a plan is the key to boosting confidence in your financial future. So, let’s kick off 2024 on a positive footing – get in touch and we’ll help you develop a plan capable of securing the rewarding retirement you deserve. 

*The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Financial pitfalls primarily impacting women

Research by AJ Bell has shone a spotlight on the financial challenges that prevent women from accumulating the same wealth as their male counterparts.

The report found that having children continues to have a disproportionately large impact on women’s finances, as do other life events such as the menopause.

The findings
Amongst the report’s findings were the following statistics:
• A quarter of women continue paying into their pension at the same rate during parental leave, vs 70% of men
• Caring responsibilities (outside of childcare) have financially impacted nearly half of women • One in 20 menopausal women have quit work due to their symptoms
• Only 55% of women return to work full time after their first child, compared to 90% of men.

Of course, no two women are the same and each will face different challenges on her journey to financial wellbeing. However, these statistics show that there are common threads here. Women continue to take the lion’s share of caring responsibilities, taking them out of the workplace and reducing their financial security not only in the present, but as they approach retirement as well.

Let’s do something about it – together
Despite the financial challenges women face, they remain less likely than men to seek professional financial advice (Canada Life, 2022). As we move into 2024, make a New Year’s resolution – let this be the year that you empower yourself to succeed and get your finances on track for a prosperous future.

Get in touch with our team today and start your financial journey – www.audleywealth.com/contact-us/

*Content is for informational purposes only

 

Looking ahead – the housing and mortgage markets in 2024

Falling house prices and turbulent mortgage rates made 2023 an unpredictable year for homeowners and movers. As the bells ring out for the start of 2024, is a calmer year on the cards? 

 

Three key questions dominate analysts’ minds it seems. First, do house prices have further to fall? Second, will mortgage rates go lower? And third, how will affordability change throughout the year?

 

House prices not bottomed out yet

After recording significant drops in 2023, even the more optimistic analysts expect house prices to keep falling in 2024. According to one such prediction (Zoopla, 2023) , prices will slip a further 2% across the year. Others (finder.com, 2023) expect a more radical drop of as much as 10% by Autumn 2024. 

 

As the number of homes for sale has steadily risen, sellers are facing pressures to keep pricing competitively, further reinforcing the picture of a buyers’ market. Despite robust supply, property prices may bottom out in 2024, separate analysis (JLL, 2023,) suggests.

 

Mortgage rates to fall?

Mortgage rates look set to remain higher for longer into 2024, some analysts (Zoopla, 2023) predict, with an expectation that they will not fall back to 4.5% until the second half of 2024. In this context of higher rates, it is expected that cash buyers will be the biggest group of buyers in 2024. There are positive signs, however, that mortgage rates are falling and will continue to do so.

 

Steady increase in housing affordability? After a shaky year, mortgage affordability improved towards the end of 2023. Indeed, the average monthly repayment for those purchasing in September was £64 per month lower than in July5 . Expected rising incomes in 2024 may have a positive effect on housing affordability. Richard Donnell of Zoopla commented, “The housing market is adjusting to higher borrowing costs through lower sales rather than a big decline in house prices.”

 

He continued, “Assuming mortgage rates remain in the 4 to 5% range, we see UK house price growth remaining in the low single digits for the next 1 to 2 years, below the projections for growth in household incomes.” 

 

Here for you

Whether or not these expectations come to pass, we’ll be here to guide you through all your property decisions in 2024. 

 

*As a mortgage is secured against your home or property, it could be repossessed if you do not keep up mortgage repayments. 

‘110 measures’ to grow the economy

With the Office for Budget Responsibility (OBR) predicting modest UK economic growth of 0.7% this year and 1.4% in 2025, during the Autumn Statement Chancellor Jeremy Hunt outlined 110 growth measures intended to get more people into work, cut business taxes and raise business investment, to get the economy “back on track.” 

 

Contrary to speculation before the fiscal event, reforms to Inheritance Tax (IHT) or Individual Savings Accounts (ISAs) allowances were not announced, although some changes are proposed, including the ability for people to pay into multiple ISAs of the same type each tax year and permitting partial transfers of ISA funds between providers, from April 2024.

 

As a reminder:

  • Inheritance Tax bands remain at £325,000 nil-rate band, £175,000 residence nil-rate band, with taper starting at £2m – fixed at these levels until April 2028 
  • The 2024/25 tax year ISA allowance remains at £20,000 and the JISA (Junior Individual Savings Account) allowance remains at £9,000. 

 

Key business and personal taxation measures

A key business-related measure was making the full expensing tax break for businesses permanent, while the headline personal taxation measure was the reduction in the main rate of Class 1 employee National Insurance contributions (NICs) from 12% to 10%. Providing a tax cut for 27 million working people, instead of taking effect on 6 April 2024, this took effect from 6 January 2024. The self-employed also benefited with Class 2 NICs paid by those earning more than £12,570 being abolished from April and Class 4 NICs paid on profits between £12,570 and £50,270, to be cut by one percentage point to 8% from April 2024.

 

Triple Lock honoured

The government’s commitment to the pensions Triple Lock was honoured, meaning that the basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2024 in line with average earnings growth of 8.5% (September 2023). The value of the new State Pension will increase in April 2024 from £203.85 per week to £221.20 per week, while the basic State Pension will rise from £156.20 to £169.50 per week. Also on the pension front, the latest steps to deliver the Mansion House Reforms include a call for evidence on allowing individuals to consolidate pensions by having one pension pot for life. 

 

The Lifetime Allowance (LTA) is still scheduled to be abolished from April 2024.

 

More good news…

A further growth measure addressed the future of Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs). The measure extended the operation of the EIS and VCT schemes from April 2025 to April 2035, continuing the availability of Income Tax and Capital Gains Tax reliefs for investors in qualifying companies and VCTs.

 

*The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Preparing your portfolio for resilience in 2024

The past few years have been challenging for investors with a series of unforeseen events and rising geopolitical tensions weighing heavily on global markets and, as a new year dawns, many issues remain unresolved. However, while such times are disconcerting for investors, the best way to achieve financial empowerment is by sticking to a sound strategic plan that optimises investment decisions and thereby tackles any potential issues head on. 

 

Geopolitical risk 

Although it may sometimes feel like we are living through unprecedented times, geopolitical risk is not a new phenomenon – it has always been a feature of the investment landscape. Russia’s invasion of Ukraine and, more recently, the Middle East conflict, however, are both clearly major events most people did not foresee. And, when such events do occur, even the most well-informed investors find it difficult to accurately predict their impact on markets and investment portfolios.

Economic prospects 

The global economy is currently in a relatively precarious position with the long-term consequences of the pandemic, war in Ukraine and the Middle East, and increasing geoeconomic fragmentation hindering prospects. The International Monetary Fund’s assessment, for example, produced just before October’s Middle East conflict erupted, points to an easing of growth across advanced economies this year, while China looks set to experience its slowest growth rate for years.

 

Investment pragmatism 

While geopolitical events need to be closely monitored, investors must also be disciplined with any changes to investment strategy based on hard facts rather than knee-jerk reactions to the latest news headlines. The key to successful investing is undoubtedly to focus on long-term objectives and mitigate any potential risks by maintaining a well-diversified portfolio spread across different asset classes, industries and geographical regions. 

 

New year, new opportunities 

While geopolitical tensions are expected to present ongoing challenges, as 2024 unfolds new investment opportunities will inevitably become available. We’ll be on hand throughout the year to help you make the most of any opportunities, by carefully repositioning your portfolio and ensuring it remains firmly aligned with your financial objectives. 

 

Get in touch with the team today – www.audleywealth.com/contact-us

 

*The value of investments and income from them may go down. You may not get back the original amount invested.