Lifestyle

High inflation over the last year has collectively cost savers billions of pounds in real terms, according to an Independent report. Have you considered the effect the rising cost of living could have on your wealth?

While inflation may not reduce how much you have in your savings account, in real terms, the value may fall.

As the cost of goods and services rises, what you could purchase with your savings falls. Usually, this happens at a gradual pace. However, as inflation has been higher than the Bank of England’s (BoE) 2% target for two years, the effect has been more noticeable.

If the interest rate your savings earn doesn’t keep pace with inflation, the value of your money decreases.

Inflation could reduce the value of your savings in real terms, but cash may still be useful

The BoE calculations suggest £10,000 in 2021 would have to have grown to £11,774 in August 2023 just to have the same spending power.

Figures suggest more families are gifting to avoid Inheritance Tax (IHT). While passing on assets to loved ones may seem like a clear solution, it isn’t always so simple.

More estates are becoming liable for IHT as thresholds for paying the tax are frozen. The Office for Budget Responsibility predicts HMRC will collect £8.4 billion from IHT receipts in 2027/28, compared to £7 billion in 2022/23.

The portion of your estate that exceeds IHT thresholds could be taxed at a standard rate of 40%. So, it’s not surprising that families are looking for ways to mitigate a potential bill.

According to a Telegraph report, the number of people who have gifted assets that would become exempt from IHT if they survived a further seven years increased by 48% between 2009/10 and 2019/20.

If the value of your estate exceeds the nil-rate band, which is £325,000 in 2023/24, your estate may be liable for IHT.

The “great resignation” is set to continue. If you’re searching for a new job, the salary is probably crucial when deciding if an offer is right for you. Yet, there are non-salary work benefits that could boost your wealth that you may be overlooking when you weigh up an opportunity.

The Global Workforce Hopes and Fears Survey from PwC found that the cost of living crisis is pushing more workers to search for a pay rise. In fact, in the UK, 23% of employees say it’s likely they’ll change jobs in the next 12 months.

Globally, the study found workers who are struggling to pay their bills are among the most likely to seek a new job, second only to those who feel overworked.

So, for many workers, the salary on offer at a new job could influence their decision. If improving your long-term financial wellbeing is your goal, there could be other factors that are just as important.

Climate change is a huge global issue. Yet, research indicates that pension funds are investing billions of pounds in businesses that are contributing to the challenge. Does your pension invest in fossil fuel companies?

The Make My Money Matter campaign claims UK pension funds are investing £88 billion in fossil fuel companies. On average, this works out to around £3,000 for each pension holder.

The campaign, which encourages UK pensions and banks to stop “destructive, harmful investments”, states the actions of fossil fuel companies that pensions are investing in aren’t aligned with climate change goals.

Among the pension funds analysed, 70% said fossil fuel giant Shell was among their largest holdings, and 60% said the same about BP. Conversely, there were no renewable energy stocks listed among the top holdings of any of the pension funds assessed.

It can be difficult not to let your emotions influence the decisions you make. When investing, emotional decision-making could be harming your portfolio’s performance and your ability to reach your goals.

While you try to make investment decisions based on logic and facts, it can be easy for emotions, from fear to excitement, to play a role at times. And a survey of financial advisers reveals it could be costing you more than you think.

According to a report in FTAdviser, financial advisers believe emotional decision-making costs investors at least 2% each year in foregone returns. They believe two of the biggest mistakes investors make are:

• Being too influenced by the news (47%)
• Taking too little risk (44%).

If you’ve been guilty of these mistakes in the past, you’re certainly not alone. The good news is that there are things you can do to reduce the effect emotions have on your investments.

Since the government introduced pension auto-enrolment in 2012, millions more workers have started saving for their retirement. Now, the government has confirmed plans to extend auto-enrolment to encourage a savings boost. The changes could have implications for both employees and business owners.

In a publication, the government has revealed key announcements following a review of auto-enrolment that started in 2017. The reforms are forecast to increase pension contributions by £2 billion a year.

3 key auto-enrolment changes to be aware of

1. The minimum age of auto-enrolment will fall from 22 to 18

Young workers could start saving into a pension much sooner. The government intends to lower the minimum auto-enrolment age from 22 to 18.

For employees, this could be a positive step. Saving for retirement from the outset of their careers could help establish positive money habits among workers.

The government has set out a new Fraud Strategy in a bid to stem the rise in the amount lost to scams. Among the measures it will implement is a ban on cold-calls related to financial products. While it could help protect you, you must remain vigilant too.

According to government figures, fraud is now the most common crime in the UK, with 1 in 15 people falling victim. Each year, victims lose almost £7 billion. Scams can have a devastating effect not only on your long-term finances but your wellbeing too.

The new measures aim to close the routes that scammers use to target victims.

Among the steps will be a ban on cold-calling on all financial products. It means if you receive a call in the future out of the blue about financial products, from insurance to investment schemes, it could signal a scam.

After more than a decade of low interest rates, many people will be pleased to see the amount their savings are earning is starting to rise. Yet, it could mean you need to pay a tax charge.

Interest from saving accounts may be liable for Income Tax. When the average interest rate was below 1%, you usually had to have a substantial amount held in cash accounts to face a tax charge. However, as interest rates rise, you could unexpectedly cross the tax threshold.

So, read on to find out when you need to pay tax on interest and how you could avoid a bill.

Do you benefit from the Personal Savings Allowance?

The Personal Savings Allowance (PSA) lets you earn interest on savings without paying tax. Not everyone benefits from the PSA, and the amount varies depending on your Income Tax bracket.

When you first seek financial advice, your goal may be to grow your wealth or make the most of tax-efficient allowances. A financial planner can provide support in these areas, but the benefits could have a much larger effect on your life and wellbeing.

A survey conducted by Hymans Robertson asked people with more than £300,000 of investable assets about the benefits of professional financial advice. And some of the results may surprise you.

While the report found many people seek financial advice to grow their wealth – 50% said they wanted expertise about the most appropriate investment vehicle – there are plenty of other benefits too.

Here are just five of the ways working with a financial planner could boost your wellbeing.

1. Improve your peace of mind

You shouldn’t underestimate the value of feeling confident about your finances and future – it can have a positive effect on your overall wellbeing.

Over the last 18 months, interest rates have increased and the rate your savings could earn has slowly been rising. However, with some experts predicting they will begin to fall towards the end of the year, should you lock in an interest rate now?

Double-digit inflation figures have led to the Bank of England increasing interest rates

The Bank of England (BoE) has gradually increased its base interest rate since the end of 2021. In November 2021, the base rate was just 0.1%. This meant the cost of borrowing was low, but savers suffered.

After a series of increases, the base rate stood at 4.5% as of May 2023. For savers, this is good news as it provides an opportunity for their savings to work harder.

The steps taken by the BoE are in response to high levels of inflation.