Over the next few weeks, there will be New Year’s resolutions aplenty as we bid goodbye to 2023 and welcome in 2024. While dismissing those 2023 resolutions that fell by the wayside, we all look to the future with hope and anticipation.
As businesses wind down for the festive period, there’s more time to spend with the family and catch some last-minute shopping. However, this is also an excellent time to get your affairs in order, review your finances, and create plans for the future. Where do you start?
Let’s start at the beginning, the turn of 2023
It’s always good to cast your mind back and review your plans from last year, your hopes and aspirations, successes and failures, and how we can improve them this year. We’ve all been there, created a list with the best intentions of going through one by one, ticking them off. However, life gets in the way, time is often in short supply, and before we know it, work takes over!
As we approach the end of 2023, there are several topics to consider, things we often leave until the end of the tax year.
Personal Finances
Whether self-employed, a business owner or an employee, you must review your finances annually. This allows you to maintain a degree of control and track your progress over the last 12 months. The cost of living crisis has reduced relative spending power and forced many of us to redirect our finances towards living costs, sometimes at the expense of pension contributions, insurance cover and long-term investment.
Reassessing your retirement goals and aspirations
Double-digit inflation has certainly not helped those seeking a comfortable lifestyle in retirement, forcing many people to re-evaluate their pension fund and relative spending power. While the struggles of the last few years won’t last forever, they have prompted the reigning in of retirement goals and aspirations, switching dreams for a more realistic approach.
This is the time when it can be difficult to see the woods for the trees, and focus on the long-term rather than being dominated by the short-term challenges we all face. Just as you may have revised your retirement dreams, we can all re-evaluate on the upside when the economy improves and our finances strengthen!
Pension contributions
The long-term benefits of pension contributions, the tax rebates, and the tax-efficient wrapper in which your investments are held are well documented. Remembering that many of us will be contributing to our pension funds for up to, and sometimes over, 40 years, for those some way off retirement there are more options. A short-term reduction in pension contributions to help with the rising cost of living is not ideal, but certainly not the end of the world.
The key is to maintain some form of regular pension contributions in these challenging times because those who stop entirely may find it difficult to restart. Don’t forget, as well as your current pension contribution allowance, you can also utilise elements of your allowance that have not been used over the last three tax years. This additional allowance can be substantial and very useful if you need to catch up, especially for those approaching retirement.
Pension consolidation
The average person in the UK is expected to work for 11 different employers within their working life. In theory, you could have up to 11 different pension pots spread amongst different administrators and of varying sizes. Even the most organised amongst us would find that challenging!
Pension consolidation is one of those subjects often discussed but very easy to put off until tomorrow, next month or next year. Only when you approach retirement, finalising your assets and cash flow, can it hit home. The consolidation of money purchase pension schemes is relatively straightforward, although it’s essential to appreciate the benefits attached to individual plans. This is where we can use our skills and experience to evaluate your situation, look at the options, and help you decide the best way forward.
Don’t forget the state pension
As a business owner or self-employed, it’s essential to keep up with your national insurance contributions to maximise your state pension going forward. Currently, the state pension is £203.85 a week, although, due to the triple lock, it is set to increase by 8.5% to £221.17 from April 2024.
It is worth investigating the level of your national insurance contributions and how this will impact your state pension on retirement. You can usually make voluntary contributions covering gaps going back six tax years and sometimes further when the government announces additional concessions. When calculating cash flow, retirement funds and the level of income required for your target retirement lifestyle, remember to consider the state pension.
Financial flexibility is important
While UK interest rates are expected to fall in 2024, it may be a few years before we see any significant reduction. Inflation appears to be under control, falling markedly in recent months, but the Bank of England is still concerned about the underlying factors. This means that when reviewing your finances and looking to get your affairs in order, you need to have a degree of flexibility.
Forecast economic growth may not be as strong as we have been used to in recent times, but the consensus is that the UK will avoid a recession. Despite the doom and gloom, we have seen some marginal upgrades in forecast UK short-term economic performance, which is encouraging.
Insurance cover for business owners and the self-employed
As many of us do with our car insurance, it is tempting just to roll over insurance policies year after year without investigating value for money and other options. The team at Pro Start Pensions also has significant experience and expertise in insurance cover. We may be able to reduce your premiums, enhance the benefits or secure a mixture of the two. So, next time your policies are up for renewal, call us, and we will see what we can do for you.
Business owners
Working with many business owners, we fully appreciate the daily stresses and strains of everyday life and the lack of time in the day to focus on business, let alone finances. Recently, we have seen some business owners looking to reduce costs by either downgrading insurance cover or cancelling it altogether. We understand why this may be tempting, but the potential financial consequences can be enormous.
There is a fine line between adequate insurance, under insurance and over insurance, which can take the eyes of an expert to recognise. Perhaps your business is growing, but your insurance cover hasn’t yet followed suit? Are there more key personnel today than last year? How would the business survive in the event of your death or critical illness? Is there sufficient overall cover?
We can assist with a range of different business insurances, including:-
- Shareholder protection
- Key person insurance
- Business loan protection
- Executive income protection
- Relevant life plans
Our team also has experience setting up workplace pension schemes to ensure you fulfil your legal obligations.
Pension investment in property
Even if there are some restrictions, one area often overlooked is using pension funds to acquire business premises and lease back. This can help your business raise funds while maintaining business premises and consistent trading. While everything must be done at the “market rate”, it can be a valuable investment for your pension fund and help your business.
We can also help with other investment options for your personal or business pension, helping to maximise your returns in the longer term.
Self-employed
As a self-employed person, you have to depend on yourself; there is nobody to take up the slack, and if you don’t work, you don’t get paid. Therefore reviewing your insurance cover is an integral part of getting your affairs in order. This generally incorporates both your working and personal lives, but ultimately protecting your loved ones and your business.
It may be time to review the value for money with your current insurance policies regarding:-
- Income protection
- Life cover
- Critical illness cover
- Family income benefit
Over the years, we have built many relationships with leading insurance companies, allowing us to negotiate on your behalf, perhaps group policies together for a discount, maximising the benefits while minimising premiums.
Don’t forget tax planning
When looking to adjust and reorganise your financial affairs, it’s easy to focus on the short to medium-term while ignoring (to a certain extent) the longer term. This is where tax planning comes into play, a vital element of any financial plan. It may be years down the line, but actions taken or not taken today could have severe consequences for your estate and the tax liability of your beneficiaries.
While pension regulation changes have been well received, recent tweaks to income tax allowances, a process known as “fiscal drag”, are dragging more people into higher tax rates. As well as reviewing your pension plans and insurance cover, as a business owner or someone self-employed, it’s also essential to look at your wider finances. Reviewing and adjusting elements of your finances in isolation is fine, but they also need to be assessed together, creating a broader financial picture with the aim of delivering on your retirement dreams.
Summary
At least once a year, it’s essential to sit down and take stock of your finances, review where you are, where you want to be and how to get there. The team at Pro Start Pensions has expertise and experience right across the board, offering advice and guidance while acting as a sounding board for your ideas and plans for the future. In the world of pensions, investments and insurance cover, we have advised clients across various scenarios. Nothing surprises us anymore!
The real value of a financial adviser will come to the fore in the most challenging of times, volatile stock markets, sluggish economies and high inflation, as we have seen of late. Those willing to make the big calls, often prompt uncomfortable conversations, while remaining focused on the realities and how to achieve your financial dreams. Call us today, and we can look at your situation in more detail, assess the options and the best way forward for you.
