Today individuals from all realms of life will find they will pay more tax in some form – be it the dividend allowance, council tax and our electric vehicles. As Chancellor Jeremy Hunt promised, everyone would feel the pain.
When it comes to tax rises, we’d like to highlight the changes to Capital Gains Tax (CGT). The amount you can earn on investment profits without paying tax is cut from £12,000 to £6,000 from April 2023 and it will go down even further to £3,000 from April 2024.
Therefore, it’s vitally important, therefore, to invest in an Individual Savings Account (ISA) and pension. These two savings vehicles are important to add to our portfolios as their tax benefits will offer some protection from tax. In our view ISAs are now as important as water to people’s well-being!
Triple lock promise kept
We’re very happy to see that the triple lock will remain and that pension benefits will keep up with the rate of inflation. The triple lock ensures that the state pension increases each year by either the UK wage growth, inflation or 2.5%, whichever is higher. In this case it will be 10.1% – in line with September’s Consumer Price Index (CPI).
While keeping the triple lock is good news, this still blatantly disregards the two-tier structure, one of the worst injustices in the UK pension system. After today’s increase, most pensioners receiving the basic state pension will get £156.20, rather than the new state pension, which will be worth £203.85. Despite this, the cost-of-living crisis impacts all of us, we all have rising bills to pay.
This discrepancy will only widen as both pensions continue to increase by the same percentage rates because the old state pension begins at a considerably lower level. Some pensioners will benefit from the additional pension on top of this, such as State Earnings-Related Pension Scheme (SERPS) and Second State Pension (S2P), but we believe they should be aligned to make it a fairer system for all.
On top of this, we can’t say we’re out of the woods yet as there’s a danger that the triple lock won’t remain forever. The government has tussled with the issue of inflationary increases for some time and keeping the triple lock in place is very expensive.
In our view, it’s so important to invest in a personal pension. You can’t rely 100% on the state pension. Relying solely on the state pension could mean that you are worse off in retirement if you don’t want to or can’t work beyond the retirement age.
Savings vs. bills?
The government is supporting the most vulnerable people in society when it comes to energy bills and mortgages. However, there will be lots of people that will not qualify for this help, and they may end up having to rely on their savings, especially when fixed mortgage deals come to an end.
Having a rainy-day fund that’s easily accessible is so important for unexpected expenses and we’d urge households to ensure they have savings tucked away for when their current mortgage rates come to an end.
There’s, of course, the temptation to reduce savings or stop saving altogether. However, if you don’t save, you’ll lose out on compound interest and tax benefits. If you can afford it, aim to only reduce savings contributions instead of stopping altogether. If you stop saving altogether to pay your bills it doesn’t guarantee a better financial future. With the state in debt and needing to increase taxes to pay its own bills, we can’t afford to rely on it.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
