Coronavirus affects the saving habits of 6 in 10 people

Coronavirus affects the saving habits of 6 in 10 people

Coronavirus has affected many aspects of our lives and research shows that savings are one area that may have been affected. Whether you’ve had to dip into savings or have been able to put away, it’s important to look at your financial plan to ensure you’re getting the most out of your money.

According to research from Aegon, six in ten peoples’ savings have been affected by the pandemic in some way. These people are split into two distinct categories:

  1. 31% of savers reported they have increased savings during lockdown as other costs, such as commuting to work and entertainment were cut. On average these savers increased the amount they put away by £197 per month.
  2. In contrast, 28% of savers said they’d been forced to reduce the amount they were saving each month or stop saving altogether. On average, savings were decreased by £159 per month.

Steven Cameron, Pensions Director at Aegon, said: “While coronavirus is first and foremost a health crisis, it is having a big impact on the nation’s wealth. Our consumer research shows six in ten of the population have changed their savings levels since the start of the crisis with a stark divide between those who have been able to save more because their expenditure in lockdown has reduced and those who have had to cut back or stop regular savings. If this divide in savings patterns continues for any length of time, it will have a big impact on the future financial security of different groups.”

Unsurprisingly, employment status had a big impact on whether savings were cut or boosted. Those needing to cut back are more likely to have been furloughed, potentially meaning taking home just 80% of their normal salary, or self-employed as income may also have been affected. While support is available for self-employed workers, they’ve typically had to wait longer for this to come through.

On the other hand, those that have remained working throughout the lockdown, either as keyworkers or from home, are likely to have maintained their income while seeing other outgoings decrease.

If your saving habits have changed, it’s important to review this in line with your financial plan. What steps you should take will depend on which of the categories you fall into.

Saving more during the pandemic

If you’ve been in a position to save more during lockdown, it’s worth looking at where your savings are going and if it’s the most efficient place.

Interest rates are low at the moment, which can mean your savings are losing value in real terms over the long term. If you already have an emergency fund established, ideally with around three months’ worth of outgoings in a readily accessible account, you should look at the alternatives. This may include a fixed-term savings account, where your money is locked away for a defined period, or investing if appropriate for your goals.

When looking at where to place your increased savings, it’s important to keep your goals and overall financial plan in mind. While investing can be a way to increase value over the long term, it’s not appropriate if you’ve decided to save for a holiday next year, for example.

Saving less or using savings during the pandemic

If your saving habits have been negatively affected by coronavirus, it’s important to understand the impact.

You may have been forced to dip into your emergency fund, for instance, depleting your usual safety net. First, you shouldn’t feel guilty about doing this, after all, you’ve put that money aside to help you weather unexpected events. However, you should keep track of what is being used and how you’ll replenish savings once you’re in a financial position to do so.

Where your regular savings have been reduced or halted, the long-term impact is something that should be considered. In many cases, a few months of lower saving contributions are unlikely to have a huge impact on financial security in the long term. But it’s worth assessing if goals are still within reach to provide peace of mind. You may find that increasing savings once you’re able to or delaying plans for a while is necessary.

While lockdown restrictions have eased, some workers are finding their routine will remain disrupted in some way in the coming months. It’s important to review your financial plan in light of personal changes if needed, it can help keep you on the right track.

It’s not just savings that Covid-19 may have affected in terms of finances either. The pandemic caused short-term volatility in stock markets which may have impacted investment portfolios and pensions, for example. If you have any questions about your financial plan and goals, please get in touch.

Please note: The value of your investment 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.

Junior ISAs: Everything you need to know about saving for children

Junior ISAs: Everything you need to know about saving for children

Building a nest egg for a child can help set them on the path to a financially secure future and highlight why saving is important. One of the most popular ways to save for a child or grandchild is using a Junior Individual Savings Account (JISA). During 2017/18, money was added to over 900,000 JISAs.

Money held in a JISA isn’t accessible until the child turns 18, making it an excellent way to save for the milestones they’ll reach in early adulthood. You may choose to save with the hope that it will be used to fund further education, learn to drive or get on the property ladder. Having a lump sum to use can make it easier for children to achieve goals and create a secure foundation as they become independent.

JISAs: The basics

JISAs operate in much the same way as adult ISAs do.

You can use a JISAs to save in cash, earning interest on deposits, or to invest and hopefully deliver returns over the long term. JISAs are also a tax-efficient way to save, interest or returns earned are tax-free.

One area where the JISA does differ is the subscription limit, the amount you can deposit each tax year. In this year’s budget, Chancellor Rishi Sunak significantly increased the JISA subscription limit from £4,368 in 2019/20 to £9,000 in 2020/21. The new limit means parents and grandparents can build a substantial nest egg for children.

The JISA annual allowance can’t be carried forward and if it’s not used during the tax year, it’s lost.

A parent or legal guardian must open a JISA on the child’s behalf, however, other family and friends can then contribute as long as the annual limit isn’t exceeded.

The money placed within a JISA belongs to the child and can’t be withdrawn until they’re 18, apart from in exceptional circumstances. However, when the child reaches 16, they will be able to manage the account, for example, transferring to a different provider to achieve a better interest rate.

If you’re considering open a JISA on behalf of a child, one of the first things to do is decide between a cash account and a stocks and shares account.

Cash JISA vs Stocks and Shares JISA

As with adult ISAs, you have two key options when saving through a JISA: cash or invest.

Both options have pros and cons, which one is right for you will depend on goals and time frame.

Cash JISA: The money deposited within a Cash JISA is secure and operates in a similar way to a traditional savings account. Assuming you stay within the limits of the Financial Services Compensation Scheme (FSCS), the money would be protected even if the bank or building society failed. The deposits within a JISA will then benefit from interest, helping savings grow. While JISA interest rates are typically more competitive than the adult counterparts, you still need to consider inflation. When interest rates don’t keep pace with inflation, savings lose value in real terms, reducing spending power. Over several years the impact can be significant.

Stocks and Shares JISA: Rather than earning interest, the money deposited within a Stocks and Shares JISA is invested with the aim of delivering returns. The key benefit is that it offers an opportunity to create higher returns than interest would offer. However, all investments involve some level of risk and in the short-term, it’s likely volatility will be experienced at some points. This means the value of savings can fall based on the performance of investments. However, historically, investments have delivered returns over a long-term time frame.

So, which option should you pick?

How you feel about investment risk should play a role in choosing between a Cash JISA and a Stocks and Shares JISA. However, the time frame is also important. Typically, you shouldn’t invest with a short time frame (less than five years) as this places you at a higher risk of being affected by short-term volatility. In contrast, longer time frames give you a chance to smooth out the peaks and troughs of investment markets.

If you’re unsure whether building a nest egg through cash or investing is right for you, please get in touch.

You don’t have to choose between a Cash JISA and a Stocks and Shares JISA either. If your goals mean you want a mix of cash savings and investments when building a nest egg, it is possible to open both types of JISA in your child’s name. The total contributions to JISAs must not exceed the annual subscription limit.

If you’d like to start saving for your child or grandchild, please contact us. Whether you want to invest through a JISA or discuss alternative options, we’re here to help you create a plan that meets your goals.

Please note: The value of your investment 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.

What would negative interest rates mean?

What would negative interest rates mean?

With interest rates at an all-time low and the economy facing uncertainty, you may have read headlines about whether negative interest rates are the next step. But what would that mean in practice and is it an option that would really be considered in the UK?

Ever since the 2008 financial crisis, interest rates have been low. Earlier this year, there were suggestions that the Bank of England would gradually start to increase its Base rate as the economy continued to recover. However, the Covid-19 pandemic has changed that. In March, the central bank decided to cut the interest rate twice in a month.

Lowering interest rates is one of the tools central banks around the world use to stimulate economic growth as it lowers the cost of borrowing. With coronavirus disrupting normal business practices, the Bank of England first cut its base rate from 0.75% to 0.25% on 11th March 2020 and then slashed it again to 0.1% on the 19th March 2020, the lowest it’s ever been.

With the interest rate hovering just above zero, the possibility of negative interest rates is rising.

How would negative interest rates affect you?

You can split the impact of negative interest rates into two areas depending on whether you’re saving or borrowing.

Let’s start with saving.

Usually, when saving, you’d earn interest on the deposits. For example, with £1,000 in a savings account earning 3%, you’d receive £30 after a full year. If the interest rate is negative at -3%, you’d instead owe the bank £30, in effect paying to save your money.

Once you factor in the impact of inflation on your spending power, savings can quickly become eroded if interest rates are below zero. While using a saving account is still important in some cases, such as holding your emergency fund, it may mean that alternatives should be considered to get the most out of your money, such as investing.

Moving on to borrowing, in theory, negative interest rates are good news.

The cost of borrowing should reduce as interest rates fall. Using a mortgage as an example, you’d still need to make repayments, however, with a negative interest rate, the outstanding amount is reduced each month by more than what you’ve paid. It can reduce debt quicker. However, it’s worth noting that some mortgages have a ‘floor’ interest rate that it won’t go below.

Negative interest rates: From Europe to Japan

While negative interest rates have never been implemented by the Bank of England they have been used elsewhere.

Sweden’s central bank cut interest rates to -0.25% in July 2009, in the wake of the financial crisis. Since then it’s been used by other European banks too, including the European Central Bank which covers the 19 countries that have adopted the euro, as well as Japan.

There are a variety of reasons why negative interest rates are used. However, during times of recession or economic hardship, people and businesses tend to hold on to their cash, waiting for the economy to improve. A lack of spending by businesses and individuals can weaken the economy further. As a result, negative interest rates can be used to encourage people to spend and drive the economy forward, though there are risks associated with the practice too.

While negative interest rates have been used before, they are by no means the norm and are still considered unconventional.

So, are negative interest rates coming to the UK?

It’s impossible to say for certain and much of the decision will depend on how the economy and businesses respond over the coming months. When asked about the potential for negative interest rates to be introduced in May during a Treasury Select Committee, the Bank of England’s governor Andrew Bailey said negative interest rates were under ‘active review’.

Bailey added: “We do not rule things out as a matter of principle. That would be a foolish thing to do. But can I then follow that up by saying that doesn’t mean we rule things in.”

As always, it’s important to keep an eye on your financial plan with current conditions in mind. However, responding to speculation should be avoided. Instead, if you’re concerned about the introduction of negative interest rates, keep in mind that your financial plan has been built with your goals at the centre. There may be a time when negative interest rates are announced and we’re here to help you assess your financial plan if this should happen. Please get in touch if you have any questions.

Please note: The value of your investment 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.

5 ways you can reduce tax liability in retirement

5 ways you can reduce tax liability in retirement

When you retire, there are a lot of financial decisions that need to be made as you start accessing the savings and investments you’ve built up. It’s natural to have lots of questions about your financial security at this point, such as:

  • How much income will I receive from my pension?
  • How long will my savings last for?
  • How should I access my pension?

But one important question is often overlooked: How much tax will I pay?

How and when you access your pension, savings and investments can have an impact on your tax liability. Planning your retirement income with tax in mind can help reduce the amount of tax you pay, helping your savings go further. It should be one of the areas you consider as you approach retirement and that financial planning can help you understand with your circumstances in mind.

In some cases, it’s possible to create a tax-free retirement income or reduce liability greatly. So, what should you consider when assessing retirement income?

1. The Personal Allowance

The Personal Allowance is the amount of income you’re entitled to receive tax-free each year. For the 2020/21 tax year, the Personal Allowance is £12,500 for the majority of people. As a result, it’s important for planning your retirement income.

The Personal Allowance covers all forms of income, including your State Pension and income from investments, for example. Once you factor in all income sources in retirement, the total will likely exceed the Personal Allowance, but it provides a base for building a tax-efficient income. As the allowance resets with each tax year, spreading out or delaying taking an income at times can help you fully make use of the tax benefit.

It’s worth noting that if you’re married or in a civil partnership, the marriage allowance allows one person to transfer up to £1,250 of their Personal Allowance to their partner too.

2. Pension withdrawal tax-free allowance

If you’ve been paying into a Defined Contribution pension during your working life, it will usually become accessible when you turn 55. This includes 25% available to withdraw tax-free. You can choose to take a 25% lump sum, tax-free, when you first access your pension, or you can spread the tax-free benefit over multiple withdrawals.

How and when you access your pension can have an impact on your income and lifestyle for the rest of your life. So, it’s important to understand the long-term impact of taking the tax-free lump sum.

3. Withdrawing from ISAs

ISAs (Individual Savings Accounts) offer a tax-efficient way to save and invest. Each tax year, adults can add up to £20,000 to ISAs, either contributing to a single account or spreading it over several. Through an ISA you can either save in cash, earning interest, or invest to hopefully deliver returns. The key benefit of ISAs is that interest or returns earned aren’t taxed.

As a result, you can make ISA withdrawals to supplement your pension income and other sources in retirement without increasing your tax liability.

4. Capital Gains Tax allowance

Selling certain assets for profit can result in Capital Gains Tax, this includes personal possessions worth more than £6,000 (excluding your car), a second home, and shares that aren’t held in an ISA or PEP (Personal Equity Plan).

However, there is an annual Capital Gains tax-free allowance, for individuals it is £12,300. In retirement, this can be a useful way to increase your tax-free income. It’s important to understand your assets, their value and how they can create an income.

5. Dividend Allowance

If you’re invested in companies that pay a dividend, the Dividend Allowance can boost your income without affecting the amount of tax you need to pay. This is on top of any dividend income that falls within your Personal Allowance.

For the 2020/21 tax year, the dividend allowance is £2,000. Carefully planning your investments and expected dividend allowance can help you boost your retirement income by £2,000 without facing additional tax charges.

If your dividend income exceeds the allowance, you will need to pay tax. The tax rate is linked to your tax band and may be as high as 38.1% if you’re an additional rate taxpayer.

Depending on your circumstances and goals, there may be other allowances and reliefs you can take advantage of too. Using a combination of saving products, such as personal pensions, stocks and shares ISAs and general saving accounts, it may be possible to achieve the retirement income you want while reducing tax liability. Whether you’re nearing retirement or are already retired, it’s worth considering how much tax you’ll pay and whether there are allowances that apply to your situation.

Planning for taxation changes

While the above information is accurate for the moment, allowances, levels of taxation and reliefs do change. As a result, it’s important that your retirement plan and income are reviewed at regular points. This allows you to take advantage of any changes and adjust how and when you take your income if necessary. If you’d like to discuss your tax liability during retirement, please get in touch.

Please note: The Financial Conduct Authority does not regulate tax planning.

The value of your investment 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.

Levels, bases of and reliefs from taxation may be subject to change and their value depends on individual circumstances.

5 museums and galleries you can visit from your sofa

5 museums and galleries you can visit from your sofa

Lockdown restrictions are gradually lifting, but it’s expected to be some time before life gets back to ‘normal’. If you’ve been missing the opportunity to visit museums and galleries over the last few months, there are some you can experience without having to leave your sofa.

Thanks to technology, organisations have been able to bring their collections direct to you. So, if you’re looking to add some culture to your routine, why not take a virtual tour of some of the most famous museums and galleries around the world?

1. British Museum, London

The British Museum first opened its doors in 1759 and has been delighting visitors with a vast array of artefacts and galleries since then. Documenting more than two million years of human history and culture, you’re sure to find something that will catch your eye here.

Among the most popular exhibitions to add to your list is the Rosetta Stone, which was essential for translating the Ancient Egyptian language, the classic Greek sculptures the Parthenon Marbles, and, of course, the Egyptian mummies.

The venue is the world’s largest indoor space on Google Street View, so you can wander through more than 60 galleries without having to set foot outside. On top of this, the museum also offers a podcast that takes you behind the scenes, a YouTube channel packed with interviews and much more. Start exploring the museum digitally here.

2. Uffizi Gallery, Florence

Located in beautiful Florence, the Uffizi Gallery is the most visited Italian museum and with good reason. The building itself is worth exploring with buildings on the complex dating back to the mid-1500s for the famous Medici family to accommodate the offices of the Florentine magistrates. It’s now famous for its huge collection of priceless artwork, much of which is from the Renaissance period.

During the summer season, tourists can wait as long as five hours to step into the gallery. The virtual tour lets you skip the queues and admire incredible works such as Botticelli’s Birth of Venus and The Annunciation by Leonardo da Vinci.

3. The National Museum of Anthropology, Mexico City

This museum is perfect for people that love to learn more about history. Built relatively recently, in 1964, 23 exhibit rooms are filled with artefacts waiting to be explored. It aims to preserve Mexico’s indigenous legacy and celebrate its pre-Columbian cultural heritage. As a result, there’s a fascinating amount of artefacts that date back centuries.

Among the artefacts that attract the most attention from tourists is the Piedra del Sol, the famous Aztec sunstone that weighs 24 tonnes, giant stone heads of the Olmec civilization and many treasures found at the archaeological site Chichen Itza.

In collaboration with Google Arts and Culture, you can now view over 140 of the museum’s most intriguing items online. Click here to view the collection and start learning about Mexico’s history.

4. Guggenheim Museum, New York

Established in 1939, the Solomon R, Guggenheim Museum features an expanding collection of impressionist, early modern and contemporary art. The cylindrical building, which the museum moved to in 1959 has become a landmark in its own right and was conceived as a ‘temple of the spirit’. Since then, several expansions have extended the space of the museum.

Jackson Pollock’s Alchemy, Magritte’s Empire of Light and Vasily Kandinsky’s Composition 8 are just some of the popular masterpieces available to view at the Guggenheim.

Using Google’s Street View feature here, you can take in some of the most famous sights from the Guggenheim Museum. The museum also offers online programs and resources, including interactive virtual tours and family-friendly options. Check the calendar of events here.

5. Pergamon Museum, Berlin

Pergamon is the most popular museum in Berlin, with over a million people visiting every year, and houses a huge range of art treasures. It features three distinct collections – Collection of Classical Antiquities, Museum of the Ancient Near East and Museum of Islamic Art – all with something to discover.

The museum houses monumental buildings that are breathtaking, even online. These include the Ishtar Gate from ancient Babylon, the Market Gate of Miletus, which was rebuilt following an earthquake around 1,000 years ago, and the Mshatta Façade, part of one of the 8th century Desert Castles of Jordan.

You can now take in the Pergamon Museum from your home here. The museum’s website also offers a 3D model of the famous Pergamon Altar, one of the terraces of the acropolis of the ancient Greek city Pergamon dating back to the 2nd century BC.

In a bid to connect with audiences during coronavirus restrictions, hundreds of other museums, galleries and other tourist attractions are offering virtual tours and digital programs too. An excellent place to start if you’re looking for some culture is Google Arts & Culture – let us know about your great finds!

Covid-19 market volatility highlights differing investment attitudes of men and women

Covid-19 market volatility highlights differing investment attitudes of men and women

Men and women often take different approaches to financial issues, including investing. The market volatility experienced during the last few months as a result of the Covid-19 pandemic has highlighted some of these differences. But is one way ‘right’?

As governments around the world took action to stem the spread of coronavirus, stock markets reacted with increased volatility. Lockdowns and social distancing meant many businesses were forced to adjust how they operate and in some cases close altogether. As the virus was named a global pandemic, uncertainty for businesses and economies continued. As a result, it’s not surprising that stock markets experienced sharp falls.

Whilst some gains have since been made on stock markets, uncertainty and volatility continue to be a feature of investing.

The recent fluctuations have highlighted how men and women view investing and the risk it entails differently. Research from Aegon has tracked how some investors have responded, with the three key areas demonstrating different approaches to investing.

1. Keeping an eye on stock market movements

The stock markets have been making attention-grabbing headlines in recent months. However, the survey suggests that men are far more likely to closely follow the movements. Seven in ten men kept track of what was happening in the stock markets, compared to half of women.

Whilst it’s important to understand the wider economic and business picture when investing, stock market movements can be unpredictable. Short-term volatility can also cloud the bigger picture. When investing, you should have a long-term goal in mind. It can be difficult to ignore short-term movements and focus on a goal that’s years away. Historically, peaks and troughs in stock market performance smooth out when you look at the long term and this is what you should focus on.

When looking at your portfolio as a whole, it’s unlikely stock market movements give a full picture of performance either. As well as stocks and shares, you may also be invested in bonds and property, as well as holding cash. As a result, whilst the stock markets may have fallen sharply in recent months, the impact on your portfolio may not be as severe.

2. Tracking investment performance

It’s important to keep track of how investments are performing, after all, how else will you know if you’re on track to meet goals?

However, there is such a thing as checking too often. It can be tempting, especially during times of market volatility, to check your investments frequently. Linking to the above point, this can lead to you focusing on short-term movements rather than a long-term goal.

The research suggested men are more likely to check how their investments have performed. More than half of men (55%) said they had done so compared to only 33% of women.

Reviewing your investments is clearly important, there may be times due to your circumstances or wider economic situation when adjustments are necessary. However, these changes should consider your goals above short-term shocks. If you’ve felt worried or nervous after checking your investment performance recently, it’s important to keep this in mind.

For most investors, sticking to a carefully crafted long-term investment strategy, which has been stress-tested, is the best course of action.

3. Believing now is the right time to invest

Should you invest now? It’s a question investors often ask their financial advisers. When stock markets dip, you may be wondering if you should invest now in order to maximise the benefit of investing when the market is at a bottom.

It’s a process that’s more likely to appeal to men, the research found. Some 46% of men said they believe now is the right time to invest in their pension, compared to 33% of women. It suggests that women are more averse to taking investment risk at times of volatility. So, which gender is ‘right’?

The truth is there’s no universally right time to invest. It depends on your financial goals and means. If you’re already contributing regularly to a pension, it’s likely in your best interests to keep making the contributions over your working career, including during times of volatility. But should you increase pension contributions now? That will depend on when you plan to retire, what assets you hold and risk profile among other factors.

The ‘right’ time to invest should be about your circumstances rather than stock market movements.

We’re here for you if you’d like to discuss your investment portfolio, whether you’re concerned about risk or looking for opportunities. Contact us to set up a meeting and look at your long-term investment goals.

Please note: The value of your investment 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.