In response to rising inflation, the Bank of England has been increasing the Base Rate and in November 2022 this rose to 3%. As a result, savings rates have been increasing steadily, and are now at the highest levels for more than a decade.

National Savings & Investments (NS&I) currently offer an interest rate of 1.80% pa gross on both its Income Bonds and Direct Saver. The annual equivalent prize rate of the Premium Bonds also increased to 2.20% pa, if you are averagely lucky, but there is no guarantee you will achieve this return.

The best instant access rate available is now around 2.8% pa gross variable.

Fixed rate accounts have also increased: 1-year fixed rate 4.35%; 2 years 4.70%; 3 years 4.75%; 4 years 4.80%; 5 years 4.95%.

Under current legislation, each individual has a starting rate for savings of £5,000, however, as your earnings increase above the personal allowance (currently £12,570 pa) this reduces by £1 for every £1 earned above this. Therefore, once your earnings are above £17,570, you have no starting rate for savings.

As well as the starting rate for savings, there is also a Personal Savings Allowance (PSA) which lets you earn a certain amount of interest from your savings tax free. Depending on the Income Tax band your income falls under, the PSA is a different amount. Basic rate taxpayers can then earn £1,000 of savings interest each tax year without paying tax, whereas higher rate taxpayers can earn £500 of interest tax free. Additional rate taxpayers have no PSA.

With interest rates increasing, the amount of interest you receive will increase, which may result in your total interest exceeding your PSA. It is therefore important to check the level of interest you are receiving, as if you expect to exceed this, ensuring you use your ISA allowance may be beneficial. Placing savings into a Cash ISA means that interest is earned tax free, so even if the interest rate is slightly lower than what is offered in an easy access account you could be earning a higher level of interest.

If the interest you earn exceeds your personal savings allowance, HMRC will collect the tax you owe through pay-as-you-earn (PAYE) if you are taxed this way. This is done automatically, and you might notice that your tax code changes.

As part of our ongoing service, we ensure our clients ISA allowances are used appropriately each year, whether this be within Stocks & Shares ISAs or Cash ISAs.

If you would like to discuss the above, please do not hesitate to contact a member of our team.

The new chancellor, Jeremy Hunt, revealed the Autumn Statement on the 17^th November. A summary on the headline points is provided below:

State Pension

The Triple Lock for the State Pension is being reinstated, with State Pensions receiving the full inflationary increase of 10.1% (September 2022 CPI measure). As a result, the full flat-rate State Pension for individuals who reached State Pension after April 2016 will be £203.85 pw (£10,600 pa) from April 2023.

Income Tax

The income tax Personal Allowance, higher rate threshold, and the National Insurance limits are already fixed at their current levels until April 2026. This has now been extended for an additional two years, until April 2028.

In addition to this, the income tax additional rate threshold (45%) will be lowered from £150,000 to £125,140, from April 2023.

Inheritance Tax

The inheritance tax nil rate band was frozen at £325,000 until 2026. This has now also been extended until 2028. This will mean the tax-free allowance has been unchanged for almost two decades by that point.

Capital Gains Tax (CGT)

Changes to CGT have long been on the cards. This was another tax allowance that had previously been frozen until 2026. However, the Annual Exempt Amount of £12,300 will instead be cut to £6,000 from April 2023 and then to £3,000 from April 2024. The rates of CGT applied to amounts over this exemption are to remain unchanged.

Dividends

The Dividend Allowance is to be reduced from its current level of £2,000 pa also. This will be £1,000 pa from April 2023 and then £500 pa from April 2024. This is the level of dividends an individual can earn before tax is due on those dividends. Above this level, the tax rate incurred on dividends will remain unchanged.

Other Announcements

Some other announcements were:

• Previously announced but confirmed again, Corporation Tax will increase to 25% from April 2023.

• The increases to Stamp Duty Land Tax thresholds will now only remain in place until 31^st March 2025.

• Oil and gas companies tax rate will increase from 25% to 35%, starting in January 2023. This windfall tax has also been extended, previously set to end in December 2025 but now ending in March 2028.

• A 45% tax on profits of older renewable and nuclear electricity generation.

• The cap on energy bills of £2,500* pa for an average household will remain in place until April 2023. This will then rise to £3,000* pa for 12 months.

*This cap sets a maximum price that energy suppliers can charge consumers for each unit of energy they use. Therefore, how much you pay will still depend on how much energy you use.

People are being encouraged to take action to trace their lost pension pots, with almost three million pots worth a total of £26.6 billion not currently matched to their owners.

The Pensions Policy Institute has published a briefing note which shows that the scale of lost pension pots has increased by £7 billion from 2018 to 2022.

In recent years we have seen an increase in people moving house and more people changing jobs through the Coronavirus pandemic, potentially exacerbating the problem of lost pensions.

It can be tricky to keep on top of all of the pension schemes you’ve paid into throughout your working career, but it’s important to track these down to ensure you’re claiming everything you’re entitled to in retirement. These lost pots, with an average value of £9,500 each, could make a real difference if they were reunited with their owners.

There are five simple steps to take to trace a pension:

• Retrace career steps
• Check old papers
• Check that the details on paperwork are up to date
• Check for any gaps in your pension history
• Contact your pension provider

If you are unsure who your pension provider is, you can ask your employer or use the Pension Tracing Service. This is a free Government service that can help you find contact details for a workplace or personal pension scheme.

Once you’ve found your pension, you will need to contact the provider to find out how much it’s worth. It is also important to take a closer look to check the rules around the retirement age, whether the investments are suitable for your circumstances and the total charges.

If you would like any more information on the above, please do not hesitate to contact a member of our team.

Rising inflation has been a theme of 2022, and September’s inflation figure has now been announced, with the Consumer Price Index (CPI) at 10.1%. According to the Office for National Statistics, this has been driven by increases in the price of food despite declines in fuel prices.

September’s CPI is a significant figure, as each year a number of pension schemes use this figure to uprate pensions from the following April.

Most schemes, however, cap their inflationary increases to pensions in payment and in deferment, with a common cap of 5% applying, meaning the inflationary increase applied to many pensions will be much lower than inflation.

It is therefore important to check the scheme rules of your pension scheme to understand how any inflationary increase is applied. This is something that we undertake at Eldon for our clients and factor into our financial planning.

The September figure is also the inflationary figure used by the government for increasing benefits and the State Pension.

The State Pension, as things stand, increases in line with the triple lock, which is the higher of:

• CPI, currently 10.1%.
• Average wage increase – September’s figures are not yet available, but this was 5.4% in August
• 2.5%

If the triple lock is maintained, we will see the State Pension increase by 10.1% from April 2023. This means the new State Pension amount would be £203.85 per week, up from £185.15 per week. With a Conservative Party leadership contest now underway however, we await confirmation of the government’s commitment to the triple lock.

The average wage element of the lock was temporarily suspended in April 2022 to avoid a disproportionate rise in the State Pension, breaking a key manifesto pledge by the Conservatives. Historically, the largest triple lock increase to the State Pension was 5.2% in 2012/13.

Previously tax thresholds, Lifetime Allowance (for pensions) and Inheritance Tax nil rate bands were due to increase by inflation. These were frozen in April 2021 following the pandemic however, meaning tax thresholds are not increased by this significant level.

Rising inflation remains a concern for the Bank of England, and with inflation at more than five times the target of 2% for CPI inflation, it seems likely that future base rate increases in the short term are to be expected.

At what level and how long interest rates may stay at a raised level is unknown. This will undoubtedly be influenced by the UK government. As we have seen over the past 6 weeks, the landscape for this can change at a fast pace.

On Friday 30th September, the Eldon team completed their ’20 Miles for 20 Years’ challenge, with a 20-mile hike around Ullswater Way.

The purpose was to celebrate 20 years of the firm’s existence, with the funds raised being directed into our Charitable Fund with the County Durham Community Foundation (the Foundation). Funds will then be applied to the Foundation’s Poverty Hurts Appeal – a cause close to our hearts and homes. More information about the Appeal is available here.

Against near-extreme weather, the team completed the challenge within 9 hours – a great feat for a route that can typically take up to 12 hours!

We are just shy of our target of £2,500, excluding any Gift Aid claimed on donations. Eldon will be matching the donations received, up to our overall target, and the Foundation will also match 50% of the funds that are directed to the Appeal. This is an effective tripling of donations.

We would like to thank all who have supported us with such a great cause, that is as important as ever in the current climate. Here’s to more charitable events to come!

Thank you!

New Chancellor, Kwasi Kwarteng, announced a sweeping package of tax cuts in his mini-budget last week – the biggest the UK has seen in the last half-century. Below we have outlined the main measures.

• Basic rate income tax is set to reduce from 20% to 19% from 6^th April 2023. This is the first cut to income tax in 15 years and is the lowest the basic rate has ever dropped to in the modern income tax system.

• The additional rate of income tax (45%), for those earning over £150,000, is set to be abolished from 6^th April 2023. This means that all earnings over the higher rate threshold (currently £50,270) will be taxed at 40%.

• The 1.25 percentage point increase in National Insurance Contributions has now been reversed, effective from 6^th November 2022.

• The planned rise in corporation tax has also been scrapped, keeping this at the current 19% rather than the proposed 25%.

• Stamp Duty Land Tax has been cut, with the threshold after which tax is paid rising from £125,000 to £250,000. For first-time buyers this has risen from £300,000 to £425,000. The maximum value of a property on which first-time buyers’ relief can be claimed is set to increase from £500,000 to £625,000.

The Government has coined the package its Growth Plan, with the intention being to tackle energy costs to bring down inflation, back businesses, and help households. An ambitious target of reaching a 2.5% trend rate of growth has been set, forming the focus of the plan. As can be expected, the announcement has so far received mixed reviews.

If you have any queries, please contact a member of the team.

As a mark of respect for Queen Elizabeth II, we will be closing our office on Monday 19^th September for the funeral.

We will reopen at 9am on Tuesday 20^th September

We are saddened by the passing of Her Majesty The Queen who was a much loved and respected figure across the globe.

She was inspirational and lived a life dedicated to public service. Our thoughts are with the Royal Family at this difficult time.

Once further details of the state funeral have been announced, we will let you know how this impacts our normal working arrangements.

With the cost of living crisis taking hold and energy/fuel bills increasing significantly, many individuals have been forced to make cut-backs where possible. One such area appears to be pension savings, to help provide more disposable income on a monthly basis. Whilst this may be temporary, and reductions minor, we need to consider the longer-term impact.

In a recent study, one in twenty UK adults confirmed that they had stopped their monthly workplace pension contributions in response to rising cost pressures. A further 6% of the 2,000 respondents to the survey by pension provider, Canada Life, said they were considering pausing pension savings now, with a further 9% considering doing so in future.

Canada Life’s modelling found that a 40-year-old earning £50,000 per year, who paused pension contributions of 8% for one year would have around £15,000 less in their pension by retirement at age 67. In giving up this potential £15,000, they would have only saved contributions of £4,000 gross over the year (£2,720 net, assuming an income tax and National Insurance saving on the contributions).

A further consideration is that with most workplace pension schemes, contributions are matched to a certain level by the employer. Therefore, a reduction in employee pension contributions may also mean a reduction in employer contributions, compounding the long-term implications.

However, it is important to remember that these are unprecedented times, with the energy price cap increasing almost 80% in September 2022. A temporary reduction in pension contributions may therefore be necessary for some people to help meet monthly outgoings.

What individuals should keep an eye on is that longer-term retirement savings aren’t forgotten about following any reduction in contributions. Doing so could lead to an increasing number of individuals being unable to meet their retirement goals, potentially having to work longer than planned, or forgoing their intended lifestyle in retirement.

This is where effective financial planning is key, taking into account short-term needs and balancing these with longer-term goals and objectives.

For those with invested pensions, it is crucial to understand exactly how your funds are invested. This can be particularly important as you move closer to retirement, as your plans for accessing benefits will impact the level of investment risk that is suitable.

The introduction of Pension Freedoms legislation in 2015 means that you no longer have to use your pension to purchase an annuity (a guaranteed income for life). In addition to annuity, a range of other access options are available. For instance, you are now able to draw flexible income/capital payments from a pension, leaving the remainder invested, under the flexi-access drawdown option.

Some providers offer ‘lifestyle’ investment funds which are designed to reduce in risk as you approach your selected retirement date. These are typically aimed at those targeting an annuity purchase or full lump sum withdrawal at retirement, to try and reduce investment volatility and large swings in value leading up to this. This is usually done by switching from higher risk assets such as equity (stocks & shares) investment to holding more in fixed-interest securities (e.g. gilts/Government bonds).

Lifestyle funds are not suitable for all investors. However, they can often be the default investment approach for a pension arrangement. For those looking to defer pension access at retirement, or access their benefits in stages, lowering the level of risk may not be appropriate. For instance, if there is no intention to ever access the funds, a higher level of risk might be suitable to aim for a higher long-term return.

Recent performance of some lifestyle funds highlights the risk of investing in this type of fund where there is no real need to do so. As interest rates are on the rise, gilt prices have typically fallen. This has skewed the performance of some funds that are weighted heavily in fixed-interest securities, with some experiencing large falls despite intending to be low-risk. Whilst this is less than ideal for those who are aiming to reduce the risk of their portfolio near retirement, it is unnecessary and counterproductive for those who have no need to lower the risk level. The position is worse for those who have a need to take a high level of risk to meet their objectives.  

In short, your investment choices will be specific to your personal circumstances and long-term objectives; it can be difficult to try and fit these into a ‘one size fits all’, lifestyle approach.

In assessing an individual’s risk profile, we consider risk based on three elements:

• Your tolerance – essentially, how you feel about risk.
• Your capacity – how much risk you can afford to take.
• Your need – the level of risk you need to take to try and meet your objectives.

Each of the above will impact the level of risk that is suitable, which is personal to an individual and subject to change as needs and goals develop over time. As such, it is important that the risk level of a portfolio and the suitability of this are kept under regular review, which is a key part of our ongoing service.

If you would like to discuss any of the above further, please don’t hesitate to contact a member of the team.

*Please note that the above should not be taken as advice and is intended for information purposes only. We would always recommend speaking with a financial adviser about your pension options/planning before taking any action.