Financial planning round up of 2023

To say the least, 2023 has been a busy year in the financial planning universe! Throughout the year, a number of themes have re-occurred in discussions with clients. As we pull the curtain slowly down on the year, I thought it would be beneficial to summarise and share the cornerstones of these discussions.

Inflation

To little surprise, the persistence of inflation within the UK economy over the past 12 months has been a significant talking point. At the time of writing, inflation remains at 4.6%, substantially above the Bank of England’s target of 2% [1]. Young ‘accumulators’ looking to build their wealth have been forced to make stark choices around the level of funding into their pensions and ISAs due to the pressure of rising household expenditure and utility bills.

Meanwhile, retirees have had to consider larger regular or lump sum withdrawals from their retirement assets to maintain their standard of living. The consequences are generally a reduction in the longevity of assets. This year, I have spent a significant amount of time helping clients analyse and understand their withdrawal patterns, ensuring these are sustainable and that they remain on track to achieve their goals and enjoy the retirement they desire.

Interest rates

The ability to save money has been further pressured by higher interest rates over the past 12 months, particularly in regard to the effect on mortgages. As the months pass, an increasing number of ultra-low mortgage terms roll into new mortgage deals at higher rates of interest. As mortgages have consumed an increasingly large proportion of monthly income, discussions around effective ways to repay mortgages ahead of retirement, manage debt and loans, as well as budgeting have all been valuable talking points with clients. It has been a year in which taking a truly consultative role with clients and understanding each individuals’ priorities has been crucial.

Interest rates are expected to fall to 3% by 2025 [2] and lower rates should generally increase monthly household disposable income, allowing individuals to take further advantage of significant financial planning opportunities such as tax-efficient pension and ISA contributions. Household debt will also be paid off at a faster rate as a result of lower interest rates.

Tax efficiency in retirement

Tax efficiency of income has also been extremely important this tax year given increased portfolio withdrawals as a result of cost-of-living pressures. After all, why pay 40% tax in retirement if this can be avoided? I have worked with clients to avoid the higher-rate tax threshold by using the four box principle of financial planning [3].

Lifetime Allowance abolition

The abolition of the Lifetime Allowance from 6^th April 2024 (with the Lifetime Allowance tax charge being removed from the start of the current tax year) is a huge shake up of the pensions tax regime and creates significant tax planning opportunities. These opportunities are very circumstantial but include the ability to continue making tax efficient contributions where an individual would otherwise previously be limited, as well as protecting assets which would otherwise be subject to the lifetime allowance charge. The Labour Party have already stated that they will consider re-introducing a similar tax if they were to win any forthcoming general election [4], and so being ‘on the ball’ over the forthcoming months will be critical to ensure that we can maximise any potential tax savings for our clients.

Summary

This year has been a story of helping clients assess their competing objectives and providing coaching in order to understand their priorities. After all, most people can’t overpay on their mortgage, make significant pension contributions AND still continue their usual day to day standards of living in an uninterrupted fashion. As we emerge from a challenging economic period, I am excited for the journey ahead in 2024, to provide clients with proactive advice and to act as their financial sounding board.