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Investment market update: August 2024

August was a rollercoaster month for investors, with the global stock market experiencing significant volatility. Read on to find out what may have affected your investments.

Many market indices saw sharp falls early in August sparked by fears that the US is on track for a recession. However, investors are likely to have experienced some recovery in the weeks that followed.

On 16 August, global stock markets boasted the best week of 2024 – the MSCI main index of world stocks was up 3.5% over the week.

UK

There was positive news from the Office for National Statistics, which reported the UK economy grew by 0.6% in the second quarter of 2024. The figure lent further weight to claims that the UK is leaving the shallow recession at the end of 2023 behind.

However, the data showed that GDP per head is 0.1% lower in real terms than it was in the second quarter of 2023. This measure is often used as a broad barometer for living standards and economic wellbeing.

Despite this, the UK is set to be the third-fastest growing economy in the G7, behind only Japan and the US.

The Bank of England (BoE) also had an optimistic outlook. The Bank more than doubled its growth forecast for 2024 to 1.25%. It also decided at the start of August to cut the base interest rate for the first time since the pandemic to 5%.

Official data shows inflation increased to 2.2% in the 12 months to July 2024. It’s the first time inflation has increased since December 2023, but it wasn’t as sharp as some economists were expecting.

With chancellor Rachel Reeves set to deliver her first Budget on 30 October 2024, news that public borrowing soared could place pressure on her plans.

Public borrowing hit £3.1 billion in July 2024 – £1.8 billion more than in July 2023. Worryingly, the Office for Budget Responsibility previously estimated the government would only need to borrow £100 million. The news led to speculation that taxes will be hiked and spending plans cut to plug the black hole.

Like many other markets, the UK experienced volatility at the start of August. On 5 August, the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – fell by 2%. It did start to recover the following day with a modest 0.23% rise.

There was good news for Rolls-Royce shareholders this month. The company announced it would pay dividends for the first time since the pandemic, as underlying profit is expected to be higher than previously estimated thanks to a turnaround plan. The announcement led to shares rising by almost 10%.

Interestingly, the High Pay Centre found that FTSE 100 chief executive pay reached a record high. The median pay in 2023 was £4.19 million. For the second year, AstraZeneca chief executive Pascal Soriot topped the list with pay of £16.85 million.

Europe

The S&P Purchasing Managers’ Index (PMI) for the eurozone indicates the bloc is growing. However, Dr Cyrus de la Rubia, the chief economist at Hamburg Commercial Bank, warned it was at a “snail’s pace”.

Rubia also noted that the eurozone has benefited from several large events so far this year, including the European Football Championship in Germany, the Paris Olympics, and Taylor Swift concerts. So, a slowdown could be experienced in the coming months.

Eurostat data shows unemployment increased to 6.5% in June 2024. Rising unemployment could signal that businesses aren’t confident about the future.

Similar to the UK, European stock markets experienced volatility early in August. The Stoxx Europe 600 index tumbled 2.2% on 5 August but moved back into the red the following day.

US

US job data sparked market volatility when figures from the Bureau of Labor showed unemployment increased to 4.3% in July 2023 and only 114,000 new jobs were created – far fewer than the 175,000 economists had anticipated. Coupled with poor earnings from some key technology businesses, stock markets fell.

On 2 August, technology-focused index Nasdaq fell by around 10% from its peak amid concerns that the US may enter a recession by the end of this year. Indeed, JP Morgan believes there’s a 1 in 3 chance the US will fall into a recession in 2024.

When markets reopened on 5 August, they sunk deeper into the red, with the Dow Jones falling by 2.8%, the S&P 500 tumbling by 4.2%, and the Nasdaq declining by 6.2%.

When Wall Street started to rally on 7 August, it was technology stocks that led the way. Salesforce saw its stocks rise by 3%, while Amazon (2.5%), Apple (2.27%) and Microsoft (2.2%) all gained too. The rally wasn’t universal though – Airbnb’s shares dropped by 14% as demand fell in the US and it missed profit expectations for the second quarter of 2024.

While gains were made, the Guardian reported that an estimated $6.4 trillion (£4.88 trillion) was erased from global stock markets in the three weeks to 7 August. Goldman Sachs also warned that the stock market correction hadn’t gone far enough.

There was some good news when PMI data indicated the service sector had increased “markedly” in July 2024, which could ease some concerns about an impending recession.

Asia

US recession fears were felt around the world.

Japan’s Nikkei index fell by 5.8% on 2 August and then suffered its worst day since 1987 on 5 August when it closed more than 12% down, while the broader Topix index experienced a similar fall. The indices bounced back, with the Nikkei’s value rising by more than 10% a day later.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Business owners: Discover the helpful benefits of offering a salary sacrifice scheme

A salary sacrifice scheme could provide a valuable boost for both employers and employees. So, if your business does not already offer this perk, read on to discover some of the key reasons you might want to consider it.

According to a report in the Guardian, salary sacrifice schemes are more popular among larger businesses. It’s estimated that only around 5% of small- and medium-sized businesses currently have a salary sacrifice scheme in place. Yet, small businesses could have just as much to gain by introducing a salary sacrifice scheme.

Salary sacrifice reduces an employee’s income in return for non-cash benefits

In simple terms, salary sacrifice is an arrangement you make with an employee where they agree to reduce their earnings in return for a non-cash benefit of the same value.

For example, if an employee accepts lower earnings, they might instead receive:

• Additional pension contributions
• Childcare vouchers
• A car or bicycle.

A salary sacrifice scheme could offer something your employees want or would benefit from over the long term.

In addition, as the employee’s income is lower, the amount they pay in Income Tax and National Insurance contributions (NIC) may fall.

Let’s say your employee earns £35,000 a year and is contributing 5% of their salary to their pension. In 2024/25, they’d usually pay around £4,136 in Income Tax and £1,794 in NICs.

If they choose to sacrifice £1,750 to receive additional pension contributions, they’d benefit from a boost to their pension savings. Their take-home pay would also rise as their NICs would fall to around £1,654. So, in this scenario, the employee’s short- and long-term finances would benefit.

As a result, from your employees’ perspective, a salary sacrifice scheme could help them get more out of their money.

Employers could also benefit from a lower National Insurance bill

It’s not just your employees that could benefit from lower NICs either – your business could too.

In the above example, if your employee agreed to reduce their salary from £35,000 to £33,250, in 2024/25, employer NICs would typically fall from around £3,574 to £3,332 – a saving of £242. If your entire team opted to join a salary sacrifice scheme, it could lead to a sizeable reduction in your NICs bill.

There are other potential benefits for employers too.

A salary sacrifice scheme can help your employees get more out of their earnings, which might have a positive impact on employee satisfaction, retention rates, and hiring new staff. It’s also a way to show you’re concerned about their financial wellbeing.

At a time when 66% of businesses told the British Chambers of Commerce they’ve faced challenges finding new staff, taking steps to show your employees they’re valued could prove worthwhile.

We can help you implement an appropriate salary sacrifice scheme for your business

If you’re considering setting up a salary sacrifice scheme for your business, we can offer support. From assessing the different options to calculating the financial benefit for your business, we could offer tailored advice that considers your needs.

Setting up a salary sacrifice scheme is just the first part of the challenge. You’ll also need to consider how to communicate the benefits to your employees and encourage them to opt in.

As a financial planning firm, this is an area we could offer support in too. We may be able to work with your employees to explain how a salary sacrifice scheme would affect their finances to demonstrate the value of the perk.

Monitoring how your employees view the salary sacrifice scheme and other perks you provide could also be useful. It may highlight when further education could be important, if changes should be made, or demonstrate to employees that their opinions are valued.

Yet, a study in HR Magazine suggests that more than half of employees have rarely, if ever, been consulted about benefits schemes that directly affect their work-life satisfaction.

If you’d like to benefit from our expertise when setting up a salary sacrifice scheme for your business, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.

4 unpredictable life events that could mean you’d benefit from a financial review

It doesn’t matter how much you prepare; sometimes unexpected life events could mean your carefully laid plans go awry. While you can’t know what’s around the corner, you can change how you respond to unpredictable events to help keep your financial plan on track.

A life event could have a huge impact on your wealth, both now and in the future. Circumstances outside of your control might even lead to you changing your long-term goals. So, even if you already have a robust financial plan in place, a review following major life events could be helpful.

Here are four unpredictable life events you might have experienced that could mean you’d benefit from updating your financial plan.

1. Experiencing redundancy

Redundancy could have a huge effect on both your short- and long-term finances.

In the short term, you might need to dip into savings or other assets to cover your essential outgoings. As you may stop contributions towards your long-term goals, such as adding to your pension for retirement, it could also mean you face an unexpected shortfall in the future.

You might also receive a redundancy payout, which you want to understand how to use to improve your financial security.

According to data from the Office for National Statistics, around 3.4 employees in every 1,000 were made redundant between March and May 2024. A separate poll from SurveyMonkey also found that 58% of employees feel uncertain about their future job security.

If you’ve been made redundant, a financial review could help you identify ways to manage your finances while you search for employment, and then assess the potential long-term impact.

2. Taking time off work due to an accident or illness

Needing to take a long time off work due to an accident or illness could leave you in a financially vulnerable position. Much like redundancy, it could affect both short- and long-term finances.

You might think the chances of you being unable to work for an extended period are slim. However, figures released at the start of 2024 and published in the Guardian, highlight how many people are affected by unexpected illnesses. According to the data, 2.8 million people were not working due to long-term sickness at the start of the year.

If you’re unable to work, a financial review could help you assess how to use your assets to create a regular income to cover essential outgoings. It might also consider how you could keep long-term goals on track.

3. Separating from your partner

Whether you’re married or not, separating from your partner may have large implications for your financial security. Separating when your finances are intertwined could have a substantial impact on your household income, regular expenses, and even long-term wealth creation.

Indeed, research led by the University of Bristol found that equal division of joint assets, including property and pensions, was not the norm during divorce. It only occurred in around 3 in 10 cases. This means that one person was likely to miss out financially.

Working with us to assess your financial plan following a separation could help you understand how your assets have changed and what steps you might need to take to improve your financial resilience.

A financial review isn’t just useful for assessing your assets. Following the breakdown of a relationship, your lifestyle goals and long-term aspirations might have changed too. So, updating your financial plan could ensure it continues to reflect the future you want.

4. Receiving an inheritance

Unexpected events don’t always harm your finances. Indeed, if you receive an inheritance or a windfall, it could provide you with greater financial freedom than you previously had.

Receiving a large lump sum out of the blue might feel overwhelming, especially if it’s through an inheritance and you are dealing with the loss of a loved one. When you’re ready, seeking tailored financial advice could help you understand how to use the wealth in a way that aligns with your goals.

Have you experienced an unexpected life event? Contact us to review your financial plan

Whether you’ve experienced one of the four unexpected life events listed above or you’ve been affected in another way, we could help you assess your financial plan to ensure it continues to reflect your new circumstances. Please contact us to arrange a meeting with one of our team.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Why tuning out political speculation may help you stick to your financial plan

In a historic victory, the Labour Party won a majority in the 4 July 2024 general election. After 14 years of Conservative government, you might be wondering what the change means for you and your financial plan.

Since Keir Starmer took office, a day has barely passed without headlines speculating about the changes Labour will enact. The news can affect your emotions and spur you to make decisions that don’t align with your financial plan.

For example, after reading that some investors are already acting to “protect their pension” from Labour, you might think you need to do the same. Or suggestions that Starmer could raise revenue by increasing the standard rate of Inheritance Tax may mean you start thinking about how to pass on wealth now.

Indeed, according to a poll from interactive investor, in the weeks before the general election, 15% of investors made changes to their portfolio, and a third considered doing so. Of those that did make changes, 30% said they were holding more money in cash, and a quarter said they reduced their exposure to UK investments.

While the markets may have experienced some volatility due to the uncertainty of the upcoming general election, this is often short-lived. History suggests that markets will recover as a new government sets out their agenda and some of the conjecture dies down.

For instance, Morningstar reported that the FTSE 100, an index of the 100 largest companies on the London Stock Exchange, increased slightly after the general election results.

It’s important to remember that investment returns cannot be guaranteed. However, if you’re making investment decisions based on political speculation, you could miss out. Some of those investors who tweaked their portfolio before the public headed to the polls might wish they hadn’t with the benefit of hindsight.

So, if you shouldn’t respond to speculation, how should you react to the new Labour government?

Sticking to your long-term financial plan often makes sense for most people

As difficult as it can be, doing nothing could actually yield better results than responding to the changing government.

Having confidence in your financial plan and sticking to it often makes sense for most people as decisions reactive to the latest news headline could lead to changes that aren’t right for you.

So, while there are still plenty of rumours about Labour’s plans over the next few years, try to tune out the noise. Instead, focus on your financial goals and how your financial plan was built to achieve them, including the steps you’ve taken to mitigate the effects of the unexpected.

It’s also worth noting that when the government announces changes that affect personal finances, they don’t usually come into effect immediately. For instance, changes to the tax treatment of different assets will often take effect when a new tax year starts on 6 April.

As a result, you don’t normally need to rush when responding. Instead, you can take some time to consider your position and how the changes may affect you.

We can help you assess the impact of government announcements on your financial plan

While reacting to speculation could be harmful to your financial plan, between now and the next general election, the Labour government could announce changes that do affect your personal finances.

As your financial planner, we’ll be on hand to help you assess what announcements mean for your finances and, if necessary, what steps you may take to reduce negative effects. Rather than making a knee-jerk reaction following announcements, we’ll help you review the changes in the context of your financial plan so you have the information you need to make decisions that are right for you.

We’ll help keep you informed about changes you might need to be aware of and when updates to your financial plan are appropriate as part of your regular reviews.

Contact us if you have any questions about your financial plan

If you’d like to review your financial plan or have any questions about how a Labour government could affect your wealth, please contact us. We could provide tailored advice that tunes out the speculation and focuses on the facts.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Investment market update: July 2024

In July, the markets were affected by general elections taking place in the UK and France, and the ongoing presidential campaign in the US. Read on to find out what else affected investment markets in July 2024.

Uncertainty and numerous other factors may affect the value of your investment portfolio. However, for most investors, long-term trends are a better indicator of their strategy’s performance than short-term movements. Returns cannot be guaranteed, but, historically, markets have risen in value over longer time frames.

UK

The UK public took to the polls on the 4 July. The results of the general election ended 14 years of Conservative rule when the Labour Party secured a majority.

The following day saw the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – rise by 0.3% when trading opened.

Housebuilders saw some of the biggest gains as Labour made building 1.5 million new homes over the next five years a key manifesto pledge. According to the Guardian, Persimmon, Vistry Group, Taylor Wimpey and Barratt Developments all saw rises between 1.7% and 2.5%.

Mid-cap index FTSE 250 also benefited from a post-election bounce when its value increased by 1.8% and reached a two-year high.

New prime minister Keir Starmer stepped into the top job and received welcome news when official statistics were released.

Data from the Office for National Statistics shows that after no growth in April, GDP increased by 0.4% in May. The figure suggests the UK economic recovery is gaining momentum after a technical recession at the end of 2023.

Inflation remained stable during July, as prices increased by 2%, which is the Bank of England’s (BoE) target. The data paved the way for the BoE’s Monetary Policy Committee to cut its base interest rate on 1 August from 5.25% to 5%.

According to S&P Global’s Purchasing Manager’s Index (PMI), the momentum in the service sector in May started to slow in June. However, the slowed pace was linked to the general election as some individuals and businesses opted to see the outcome before they placed orders. So, the sector could see an uptick in July.

Despite the positive signs, many businesses are still struggling. According to business recovery firm Begbies Traynor, the number of firms in “significant” financial distress jumped by 10% in the second quarter of 2024 compared to the first three months of the year.

The numbers are even more stark when you compare them to the same period in 2023 – with a 36.9% rise. Of the 22 sectors monitored, 20 saw an increase in the number of firms in difficulty.

Europe

Inflation across the eurozone fell slightly to 2.5% in the 12 months to June 2024, according to Eurostat. The figures show inflation varied significantly across the bloc. Finland recorded the lowest rate of inflation at 0.5%, while Belgium had the highest rate at 5.4%.

With the headline inflation figure still above the 2% target, the European Central Bank opted to hold interest rates.

PMI figures suggest the manufacturing sector is struggling in the eurozone. It was partly pulled down by Germany’s enormous manufacturing sector, which has been contracting for the last two years, according to the PMI. A PMI reading above 50 indicates growth, so Germany’s reading of 43.5 in June suggests the country has some way to go before it starts to grow again.

The parliamentary election in France and its unexpected twists led to market volatility. On 1 July, the CAC 40 index, which includes 40 of the most significant stocks on the Euronext Paris stock exchange, was up 1.5% as it became less likely a far-right party would secure a majority.

The final shock results saw the formation of a left-wing coalition. The uncertainty around whether the left could work with Emmanuel Macron’s centrist party led to the CAC 40 falling by 0.5% on 8 July when trading opened. Yet, it returned to positive territory later in the day.

The EU is reportedly planning to impose an import duty on cheap goods amid concerns from retailers in a move that could affect foreign businesses, such as Temu and Shein. The current limit for import duty is €150 (£126.13), which allows some retailers to ship products from overseas while avoiding a levy.

US

The US presidential election doesn’t take place until 5 November, but candidates have already been campaigning for months.

Following an assassination attempt on Republican candidate Donald Trump, Wall Street rose on the 15 July. Expectations of a victory for Trump led to the S&P 500 index rising 0.42%. The share price of Trump’s media company far outstripped the market when it rose by 70% at the opening and briefly led to the business being valued at $10 billion (£7.76 billion).

With Joe Biden stepping out of the presidential race, the results of the election are far from certain and it’s likely to continue affecting markets.

Inflation in the US continued to fall in the 12 months to June. However, at 3%, it’s still above the Federal Reserve’s 2% target.

Official statistics also show that the US trade deficit widened slightly as exports fell by 0.7% month-on-month in May while imports fell by 0.3%. The deficit now stands at around $75.1 billion (£58.3 billion) and could be a drag on growth in the second quarter of 2024.

American cybersecurity company Crowdstrike saw its share price plunge by more than 13% when a software bug crashed an estimated 8.5 million computers around the world on 19 July. The error led to services grinding to a halt as it affected banks, airlines, railways, GP surgeries, and many other businesses globally.

Meta, owner of Facebook and Instagram, also saw its share price fall after the EU ruled it breached a new digital law. Meta’s advertising model that charges users for ad-free versions of its social media platforms that don’t use personal data for advertising purposes was found to breach consumer protection rules. Meta could now face fines of up to 10% of its global revenue.

Asia

A growing interest in artificial intelligence led to Japan’s Nikkei 225 index reaching a record high on 9 July, when it increased by 0.6%.

Over the last few months, statistics have suggested that China could face some challenges if it’s to maintain its pace of growth. However, data shows exports grew at their fastest rate in 15 months in June 2024 thanks to a boost in the sales of cars, household electronics, and semiconductors.

Year-on-year, Chinese exports grew by 8.6% to $307.8 billion (£258.8 billion). Over the first half of 2024, exports totalled a staggering $1.7 trillion (£1.43 trillion) – a 3.6% increase when compared to a year earlier. Coupled with weaker imports, it led to a record $99 billion (£83.25 billion) trade surplus.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Inheritance Tax: The basics you need to know about the “death tax”

Often dubbed “death tax” or “Britain’s most-hated tax” in the media, Inheritance Tax (IHT) may seem complex, and you might be unsure if it’s something you should consider as part of your estate plan.

Over the next few months, you can read about the essentials you need to know, how to reduce a potential tax bill, and the importance of regular reviews.

IHT is a tax that’s levied on the estate of someone who has passed away if its value exceeds certain thresholds.

Around 4% of estates were liable for IHT in 2023/24 and it led to the Treasury receiving a record £7.5 billion, according to a Professional Adviser report. That’s an increase of £400 million when compared to the previous tax year.

With a standard tax rate of 40%, IHT could have a huge effect on the wealth you pass on to loved ones. According to HMRC, the average IHT bill in 2020/21 was £214,000.

There are often ways you could reduce an IHT bill if you’re proactive. One of the first steps to take is to find out if your estate could be liable for IHT.

So, read on to find out how the IHT thresholds work.

Most estates can pass on up to £500,000 before Inheritance Tax is due in 2024/25

Your estate encompasses all your assets. So, you might need to consider savings, investments, property, and material items when you’re calculating its value.

The threshold for paying IHT is £325,000 in 2024/25; this is known as the “nil-rate band”. If the total value of your estate is below this amount, no IHT will be due.

Many estates can also make use of the residence nil-rate band. In 2024/25, this is £175,000. To use this allowance, you must pass on your main home to children, grandchildren, or other direct descendants.

As a result, the majority of estates can pass on up to £500,000 before they need to consider IHT.

If the net value of your estate (the value of assets less any liabilities) exceeds £2 million, you could be affected by the tapering of the residence nil-rate band. If you have any questions about your IHT allowances, please contact us.

Importantly, if you’re married or in a civil partnership, your partner can inherit your entire estate without having to pay an IHT bill. In addition, your partner could also inherit unused allowances when you pass away.

In effect, when you’re planning as a couple, this means you could pass on up to £1 million before IHT is due.

Remember, the value of your assets may change

While the value of your estate could be under the IHT thresholds now, will that still be the case in the future?

Both the nil-rate band and residence nil-rate band are frozen until April 2028. This freeze is expected to pull more estates above the threshold. Indeed, the Institute for Fiscal Studies estimates that 7% of estates could be liable for the tax by 2032/33.

So, if the value of your assets increases, you might unexpectedly find that the value of your estate now exceeds the threshold for paying IHT. Regular reviews of your assets and estate plan could help you assess if IHT might be something you need to consider in the future.

Contact us to discuss if your estate could be affected by Inheritance Tax

If you’re worried that IHT could affect your estate, please contact us. We could help you formulate an estate plan that’s tailored to you and your wishes.

Read our blog next month to discover some of the ways you might be able to mitigate an IHT bill.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate Inheritance Tax planning or estate planning.

The fantastic benefits of basing your financial plan on happiness

When you think about what you want the future to look like, it’s probably not the value of your assets that comes to mind first. Instead, you might think about the experiences you want or the wellbeing of your loved ones

Yet, to build the life you want, money is usually an important factor. While you often hear that “money can’t buy happiness”, the reality is that your financial circumstances are likely to play a role in whether you can secure the lifestyle you want.

By making your financial plan as much about happiness as your wealth, you could work towards your long-term goals and improve your overall wellbeing.

Combining your financial goals and happiness could improve your wellbeing

There are several excellent reasons to consider both your wealth and happiness when creating a financial plan.

First, financial stress can be detrimental to your wellbeing.

According to findings from the National Debtline, almost half of people in the UK were worried about money at the start of 2024 – the equivalent of 24.9 million people. Only 12% of people said they were not at all worried and felt able to cope financially.

Indeed, a report from Aegon found even among top earners, 1 in 3 people worried about their finances. So, taking control of your finances could improve your overall mental wellbeing.

In addition, it could focus on how you use your wealth to deliver outcomes that boost your happiness over the long term.

Rather than focusing simply on wealth creation, a financial plan would consider what steps you need to take to be able to reach your goals.

For example, after reviewing your finances, you might decide to reduce your working hours to phase into retirement sooner than expected. While that could mean the value of your pension is lower than if you continued to work, the free time you’d gain could be far more valuable. You might use the freedom to spend more time with your grandchildren or indulge in a hobby that brings you joy.

Making happiness a key part of your financial plan may allow you to make decisions that balance getting more out of your life with financial security.

3 valuable ways making happiness part of your financial plan could improve it

1. It gives you a chance to define what makes you happy

While you might work hard to build a fulfilling life, when was the last time you really considered what makes you happy?

According to the Financial Wellbeing Index from Aegon, just 1 in 4 people are very aware of the day-to-day experiences that give them joy and purpose in life. Similarly, only 1 in 4 people have a concrete vision of the things and experiences their future self might want.

This disconnect could mean some people are making decisions that don’t align with the future they picture for themselves.

By basing your financial plan on happiness, it provides an opportunity to set out what could improve your wellbeing now and in the future.

2. It could enhance your motivation to follow a long-term plan

Sticking to a financial plan over a long period can be difficult. However, knowing that your efforts will help you create the life you want may improve your motivation and help you stay on track.

If you daydream about retiring early, having a financial plan that’s been tailored to this goal might mean you’re less likely to pause pension contributions to fund short-term expenses.

So, putting your happiness at the centre of your financial plan could improve the outcomes.

3. It may help you calculate how much is “enough”

While money can’t buy happiness, it certainly can play a role in creating a life that will make you happy. Effective financial planning could help you calculate how much is “enough” for you.

Whether your goal is to retire early, have the financial freedom to travel more, or spend time with your family, financial security is often important for peace of mind. A financial plan could help you get your finances in order, so you can focus on what’s more important – enjoying your life.

Contact us to devise a financial plan that focuses on your happiness

If you’d like to work with us to devise a financial plan that places your happiness and wellbeing at the centre, please contact us. We’ll work with you to understand your goals and circumstances to build a tailored plan that suits your needs.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Why the “4% rule” could put your retirement finances at risk

When you’re accessing your pension, it’s important to consider the sustainability of your withdrawals. You might have heard of the “4% rule”, which provides a seemingly simple way to calculate how much you can access each year. However, for modern retirees, applying this rule to your pension could be risky.

The 4% rule was first articulated by William Bengen, a retired US financial adviser. The rule essentially suggests you can withdraw up to 4% of your pension each year without fear of outliving the money. In fact, Bengen said 4% was the worst-case scenario for retirees and suggested a withdrawal rate of 7% would often be “safe”.

The 4% rule sounds simple, so it can be tempting to put it into practice yourself. Yet, it could leave retirees short in their later years.

With many retirees fearing that they may outlive their pension – a report from This Is Money suggests almost half of retirees worry about this – read on to find out why you shouldn’t rely on the 4% rule.

4 compelling reasons to avoid the 4% rule

1. Longevity has increased how long your pension might need to last

One of the key challenges when deciding how much you can sustainably withdraw from your pension is that you don’t know how long it’ll need to last.

Bengen based his 4% rule on the need to create a retirement income for 30 years. Yet, there’s a real possibility that many modern retirees will need to fund a longer period than this.

Data from the Office for National Statistics suggests a man retiring today at age 60 would, on average, need to fund 25 years in retirement. Yet, there’s a 1 in 4 chance he’d live to be 92 and a 10% chance he’d celebrate his 97th birthday.

So, while a plan to spread your pension over 30 years might seem sensible at first glance, there’s a risk that you could run out of money in your later years.

For women, the risk could be even higher. A 60-year-old woman has an average life expectancy of 87, with a 1 in 4 chance of reaching 94 and a 10% chance of marking her 98th birthday.

As life expectancy continues to rise and retirees will likely need to draw on their pension for longer, using the 4% rule could become even riskier.

2. Periods of high inflation could mean withdrawing too much

When Bengen first named the 4% rule, he noted that retirees should adjust their annual withdrawals by the rate of inflation to maintain their spending power.

As recent events have shown, inflation isn’t always stable. A period of high inflation could mean you end up needing to withdraw higher sums to maintain your standard of living and deplete your pension faster than you expect as a result.

Inflation began to rise in the UK in 2021 and reached a peak of more than 11% in 2022. While the figure has fallen, it’s had a lasting impact on the budgets of households, including retirees.

According to the Bank of England, if you retired in 2021 with an annual income of £35,000, average inflation of 8.9% would mean your income would need to rise to more than £41,000 in 2023 to provide the same spending power.

That’s a huge jump in just two years. Over a retirement that might span decades, inflation might affect your income needs more than you anticipate, especially if events outside of your control lead to periods of high inflation.

3. Investment returns cannot be guaranteed

Another assumption that Bengen makes is that investment returns will help your pension continue to grow in retirement.

It’s important to note that investment returns cannot be guaranteed.

In addition, Bengen used historical performance figures from the US stock market, which isn’t a reliable indicator of future performance. While his calculations held up when compared to market performance between the 1920s and 1970s, that doesn’t mean it’s automatically the case for your portfolio.

It’s often important to consider how your pension is invested and whether it reflects your risk profile.

As well as understanding the potential returns, reviewing how the value of your pension could be affected during downturns could improve your financial resilience in retirement.

4. Your retirement income needs may not be static

Another drawback of the 4% rule is that it assumes your income needs will remain the same throughout retirement. In reality, many retirees find their outgoings change.

For instance, you might spend more in your first years of retirement as you make the most of having more freedom. Or you might plan to provide family members with financial gifts in the future, which may affect how you use your assets to create an income.

Another possibility retirees might want to consider is needing care or other type of support later in life. If you need to rely on care services, your outgoings could rise sharply in your later years.

A tailored financial plan could help you create your own pension rules

One of the biggest downsides to the 4% pension rule is that there’s simply no one-size-fits-all solution. How much you may withdraw from your pension depends on a whole host of other factors, from your retirement plans to what other assets you have.

So, instead of relying on a seemingly simple rule, working with a professional to create a tailored financial plan could help you devise your own set of rules to give you retirement confidence. Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Higher-rate taxpayers: Beware of the 60% tax trap

The tapering of the Personal Allowance means some higher-rate taxpayers effectively pay an Income Tax rate of 60%, sometimes without realising. Fortunately, if you’re affected, there could be ways to reduce your tax bill.

A report in the Telegraph suggests 1.35 million workers were affected by the 60% tax trap in 2023/24. Collectively, they paid an extra £4.7 billion to the Treasury. Read on to find out if you could unwittingly be paying a higher rate of Income Tax than you expect.

The tax trap affects those earning more than £100,000

You might think the highest rate of Income Tax is 45%, and officially you’d be correct. Most people pay the standard rates of Income Tax. In 2024/25, Income Tax rates and bands are:

Please note, that different Income Tax bands and rates apply in Scotland.

However, the Personal Allowance is reduced by £1 for every £2 you earn over £100,000. If you earn more than £125,140, you don’t have a Personal Allowance and pay tax on all your income.

For example, if you earn £101,000, on the £1,000 above the threshold, you’d pay £400 of Income Tax at the higher rate. In addition, you’d lose £500 of your Personal Allowance, so this portion of your income would also be subject to Income Tax at 40%, adding up to £200.

So, out of the £1,000 you’ve earned above the tapered Personal Allowance threshold, you’d only take home £400 – a 60% effective tax rate. It’s led to the tapering being dubbed a “stealth tax” in the media.

Further compounding the issue is the fact that the Personal Allowance and Income Tax bands are frozen until 2028.

While the thresholds are frozen, many people are likely to receive wage increases. As a result, more people are expected to be caught in the 60% tax trap in the coming years.

Don’t forget your salary might not be your only income that’s considered when calculating your Income Tax bill. For example, you could be liable for interest earned on savings that aren’t held in a tax-efficient wrapper.

Contact us if you’re unsure which of your assets could be liable for Income Tax.

3 legal ways to avoid falling into the 60% tax trap

If you’re affected by the tapered Personal Allowance, thinking about how you structure your earnings may provide an opportunity to reduce how much you’re giving to the taxman. Here are three excellent options you might want to consider.

1. Boost your pension contributions

One of the simplest ways to avoid paying 60% tax if you could be affected is to increase your pension contributions.

Your taxable income is calculated after pension contributions have been deducted. As a result, boosting pension contributions could be used to reduce your adjusted net income so you retain the full Personal Allowance or reduce the proportion you lose.

Increasing pension contributions could help you secure a more comfortable retirement too. However, keep in mind that you cannot usually access your pension savings until you’re 55 (rising to 57 in 2028).

2. Use a salary sacrifice scheme

If your workplace has a salary sacrifice scheme, it could also provide a useful way to reduce your overall tax liability.

Salary sacrifice enables you to exchange a part of your salary for non-cash benefits from your employer. This could include higher pension contributions, childcare vouchers, or the ability to lease a car.

By essentially giving up part of your income, you might be able to bring your taxable income below the threshold for the tapered Personal Allowance.

You should note that salary sacrifice options vary between employers, so it may be worthwhile to check your employee handbook to see if any options could suit you.

3. Make charitable donations from your income

If you’d like to reduce your Income Tax bill and support good causes, you could make a charitable donation. Again, by deducting donations from your salary before tax is calculated, you could manage how much of the Personal Allowance you lose.

Contact us to talk about how to manage your tax bill effectively

There may be other steps you could take to reduce your overall tax bill. A tailored financial plan will consider your tax liabilities, including from other sources, such as your savings and investments, to highlight potential ways to cut the amount you pay to the taxman.

If you’d like to arrange a meeting, please get in touch.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Investment market update: June 2024

2024 is a historic election year – elections will take place in 50 countries. More than 2 billion voters will head to the polls in countries including the UK, US, France, and South Africa throughout the year. Political uncertainty can affect investment markets and there was evidence of this in June.

During market volatility, remember that markets have, historically, recovered in the longer term. And, for most investors, sticking to their long-term investment strategy makes financial sense.

Read on to find out what affected investment markets around the world in June 2024.

UK

Despite hopes that the UK economy had turned a corner when it exited a recession in the first quarter of 2024, GDP figures were disappointing in April. Official figures show the economy flatlined when compared to a month earlier.

Yet, the Bank of England (BoE) remains optimistic. The central bank raised its second-quarter growth forecast to 0.5% after it revised upwards its May 2024 prediction of 0.2%.

There was further good news for the BoE too – UK inflation fell to its official target of 2% in the 12 months to May 2024 for the first time since 2021. The news led to speculation that the bank would cut its base interest rate, but the Monetary Policy Committee opted to hold it at 5.25%.

The positive inflation data sets the stage for a rate cut later this year, with the BoE saying it will keep interest rates “under review”.

As inflation pressures started to ease, figures from the Insolvency Service suggest fewer businesses are failing. The number of firms that became insolvent fell by 4% in May when compared to a month earlier. Even so, the number is 3% higher when compared to the same period in 2023.

Readings from the S&P Global Purchasing Managers’ Index (PMI), which measures business conditions, are also positive. In May:

• UK factories returned to growth with the most rapid expansion of output in two years. The boost was mainly supported by domestic demand, as new export orders fell.
• The service sector lost momentum but still posted growth. The slower pace is partly due to new orders easing when compared to the 11-month high recorded in April.

Uncertainty as UK political leaders campaigned ahead of the 4 July 2024 general election was partly linked to the FTSE 100 index, which includes the largest 100 companies listed on the London Stock Exchange, falling by 0.4% on 4 June.

Amid political turmoil in France, London regained its crown as Europe’s biggest stock market, which Paris has held for the last two years. According to Bloomberg, as of 17 June, stocks in the UK were collectively worth $3.18 trillion (£2.52 trillion) compared to France’s $3.13 trillion (£2.48 trillion) valuation.

Europe

At the start of the month, the European Central Bank (ECB) slashed its three key interest rates by 25 basis points in the first cut since the start of the Covid-19 pandemic.

Yet, figures released by Eurostat just two weeks later showed inflation was 2.6% in the year to May 2024 across the eurozone, up from 2.4% in April. The news prompted some commentators to speculate the cut to interest rates had been made too soon.

PMI data was positive in the eurozone as business activity grew at the fastest rate this year. Of the top four economies in the bloc, only France contracted slightly, while Germany, Spain, and Italy posted growth.

President of France Emmanuel Macron called a snap election, which is set to be held between 30 June and 7 July. The election has added to the political uncertainty affecting markets.

Indeed, on 10 June, France’s CAC index, which is comprised of 40 of the most prominent listed companies in the country, was down 2%. The effects were felt in other stock markets too, with Germany’s DAX falling 0.9% and Italy’s FTSE MIB losing 0.95%.

In response to the snap election, credit ratings agency Moody’s issued France with a credit warning, stating there was an increased risk to “fiscal consolidation”. Citigroup also downgraded its rating for European stocks from neutral to overweight due to “heightened political risks”.

US

The New York Stock Exchange got off to a rocky start in June. On 3 June, a technical issue led to large fluctuations in the listed prices of certain stocks. Warren Buffett’s Berkshire Hathaway was affected by the glitch, which suggested shares had fallen in value by 99%. Fortunately, the issue was resolved within an hour.

The rate of inflation fell to 3.3% in May 2024 but remains above the Federal Reserve’s target of 2%.

The drop in inflation led to a boost for Wall Street. On 12 June, both the S&P 500 index, which includes 500 of the largest companies listed in stock exchanges in the US, and tech-focused index Nasdaq opened at all-time highs.

Figures from the US Bureau of Labor Statistics indicated that businesses are feeling confident about their future. 272,000 jobs were added in May, far higher than the 185,000 Wall Street has forecast. Yet, unemployment also increased slightly to 4%.

Tesla shareholders voted in favour of CEO Elon Musk’s huge $56 billion (£44 billion) pay package – the largest corporate pay package in US history by a substantial margin. The results of the annual general meeting led to Tesla shares rising by around 6.6%, which helped recover some of the 28% losses they’ve suffered so far this year.

Asia

Moody’s raised China’s growth forecast to 4.5%, up from 4%. While growth of 4.5% would be great news in many developed countries, it would mark a slowdown for China, which saw its GDP rise by 5.2% in 2023.

However, signs of a trade war starting between China and the EU loomed and could dampen growth expectations.

The EU notified China that it intended to impose tariffs of up to 38% on imports of Chinese electric vehicles. The move would trigger duties of more than €2 billion (£1.69 billion) a year. The announcement followed an investigation into alleged unfair state subsidies and similar tariff increases from the US earlier this year.

In retaliation, China opened an anti-dumping investigation into imported pork and its by-products from the EU. China is the EU’s largest overseas market for pork, which was worth $1.8 billion (£1.42 billion) in 2023.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.