Preparing for the longevity megatrend in an uncertain world - As a new year dawns and we ponder what
the next 12 months may hold for us as individuals and investors, one thing is for certain, some familiar challenges lie ahead.
• The International Monetary Fund (IMF)1 unveiled its latest economic assessment
the week prior to the US election,
proclaiming a period of ‘stable but
underwhelming’ global growth for the year
ahead. The update also predicted a return
to a more neutral monetary policy stance
as inflation in most economies steadily falls
towards target in 2025.
The report acknowledged ‘exceptional’
levels of uncertainty, which Donald Trump’s
subsequent return to the White House has
done little to ease. Quantifying the impact
of the Republican’s victory is difficult at
this stage, but a return to US protectionism
and the prospect of trade wars certainly
pose a threat to the global economy.
• A global phenomenon - The IMF forecast also highlighted some structural challenges that are expected to temper global growth, with an ageing population amongst the most prominent. As well as impacting the economy and presenting an investment theme to capitalise on, the unfolding longevity megatrend is a global phenomenon, which presents a financial challenge at a personal level too as we live longer.
• Life goals - Research suggests most of us are vague when it comes to financing increased longevity ‒ less than a third of 55 to
64-year-olds, for example, currently
prioritise funding retirement. Preparation
and setting life goals typically makes us feel
more in control of, and optimistic about,
our futures and is undoubtedly key to
confronting the realities and practicalities of
living longer. Such targets, though, do need
to be focused beyond current life stages.
• Talk, support, plan, live - Encouragingly, the research also found
that people who use an adviser tend
to be better prepared for later-life
eventualities, whether that be financing
retirement or providing support for
loved ones. Considerations extend
to emotional and practical, as well as
financial. Another element of longevity is
successful communication. Advice helps
clients successfully navigate the financial
landscape as well as encouraging them to
engage family in financial conversations;
we can support you on all counts – it’s all in
the planning!
Taking steps to avoid a
retirement overspend -
A fifth of respondents to a survey3
have consistently spent more
than they expected to during their
retirement so far. Moreover, 11%
of the over-55s surveyed also said
their overspending had occurred
early on in their retirement.
At its latest meeting, which concluded on 18 September, the
BoE’s Monetary Policy Committee (MPC) voted by an 8–1 majority
to leave Bank Rate on hold. The one dissenting voice voted
for what would have been a second successive quarter-point
cut following the committee’s decision to reduce rates in early
August, the first reduction since 2020.
So, what were the biggest reasons
behind the overspend? Cost
of living (28%), housing costs,
including mortgage payments and
maintenance costs (21%), travel
(14%), supporting family (7%)
and leisure (6%).
Having worked hard all your
life, the feeling of emotional
and financial freedom that
often accompanies retirement
is enough to lead some retirees
to spend more than they should.
With reserves to draw upon and
plenty of free time, it can prove a
challenging financial situation for
those who are less strategic with
their money.
Plan for future expenses
To avoid a retirement overspend,
we can work with you to
understand what your spending
needs might be and develop a plan
that supports your desired lifestyle.
Family tensions over money talks – time to break the taboo • Many wealthy individuals hesitate to
discuss financial planning due to fears
of family disagreements, with 10%
avoiding the topic altogether and 27%
finding it uncomfortable6.
However, this reluctance to have
a discussion could lead to future
misunderstandings, as family members
may have unrealistic expectations about
their inheritance. Only 12% of wealthy
individuals said they regularly discuss
financial plans with their family and
23% want to but struggle to start
the conversation.
• Generational differences add to
the tension - Nearly half of those under 35 said they
expect to receive an inheritance, while
10% of those over 50 worry their family
will be disappointed by their actual plans.
Older generations are also more hesitant to
talk about money, with 27% of those over
50 believing younger generations are more
comfortable discussing financial matters.
• Regional variations in financial pressures - It’s not just inheritance that causes
people to stress about money. Another
survey7 found the three main causes of
financial pressure were: maintaining a
certain lifestyle later in life, the value of investments and how much tax might be
payable. Wealthy Londoners were found
to be under the most financial pressure,
with 88% experiencing financial stress.
Of these, 20% worry about their finances
constantly and nearly another 20% report
worrying most of the time. The East of
England followed a close second with
85% admitting persistent fear about the
health of their finances.
• Open and honest discussions - Whatever your level of wealth, having
open and honest discussions about money
and inheritance could ease your financial
stress, helping your family to avoid future
disappointment and ensuring everyone
understands the reasoning behind the
financial decisions you make. While these
conversations may be uncomfortable, they
could help to reduce your financial stress
in the long run as well as being essential
for preventing shocks for your family.
Break the taboo and have open
conversations with your loved ones
about your financial circumstances and
inheritance plans, allowing you and your
family to take control and make necessary
financial arrangements now that will help
to ensure that you’re in good stead for the
future. We can help.
Dive into ’25 on top of key tax changes
A couple of months have passed since the
Autumn Budget, a significant milestone for
the Labour government. A comprehensive
set of measures impacting individuals
and businesses were announced,
featuring £40bn in tax increases. Key
announcements involved Inheritance Tax,
Capital Gains Tax, domicile status, VAT
on private school fees, Stamp Duty and
Income Tax thresholds.
Inheritance Tax (IHT) Following weeks of speculation, changes
to IHT were widely expected. The freeze
on IHT thresholds at £325,000 has been
extended to 2030 and, from April 2027,
pension pots will be considered part of
taxable estates. This significant shift is
likely to mean that more estates will be
subject to IHT from the 2027-28 fiscal
year, impacting those who have relied on
pensions as a tool for inheritance planning.
Reviewing your retirement and estate
planning now, ahead of this change,
is advisable.
Business Property Relief (BPR) and
Agricultural Property Relief (APR) are also
seeing changes. From April 2026, the first
£1m of combined business and agricultural
assets will not be subject to IHT; for assets
over £1m IHT will apply with 50% relief at
an effective rate of 20%. This reduction
could impact succession planning,
particularly for small business owners
and family farmers.
Capital Gains Tax (CGT) CGT increases were announced, with the
basic rate moving from 10% to 18% and
the higher rate from 20% to 24%. These
changes were effective from 30 October 2024. Additionally, the CGT rates on
carried interest will rise to 32% from April
2025, with further reforms scheduled
from April 2026.
The rate for Business Asset Disposal
Relief and Investors’ Relief will increase to
14% from 6 April 2025 and then to 18%
from 6 April 2026. The lifetime limit for
Investors’ Relief was reduced to £1m for
all qualifying disposals made on or after
30 October 2024, matching the lifetime
limit for Business Asset Disposal Relief.
Non-domiciled (non-dom) status The familiar non-dom tax regime will
be phased out from April 2025, to be
replaced by a residence-based scheme.
This includes ending the use of offshore
trusts to shelter assets from IHT and
scrapping the planned 50% tax reduction
for foreign income in the first year of the
new regime. Individuals who opt in to
the regime will not pay UK tax on foreign
income and gains (FIG) for the first four
years of tax residence. To incentivise
investment, the Temporary Repatriation
Relief will be extended to three years,
offering reduced rates on gains and
income for wealthy investors considering
bringing assets into the UK.
VAT on private school fees As indicated in the Party’s election
manifesto, the Chancellor confirmed
plans to introduce VAT on private
school fees (except for children below
compulsory school age) from January
2025 and to remove private schools’
business rates relief from April 2025.
Stamp Duty The Stamp Duty surcharge on second homes and investment properties will
increase from 3% to 5% above standard
residential rates, effective immediately. This
change is expected to temper demand in
second homes and the buy-to-let market,
particularly in high-value areas like London.
Income Tax The Income Tax Personal Allowance and
higher rate threshold remain at £12,570 and
£50,270 respectively until April 2028. From
April 2028, these personal tax thresholds
will be uprated in line with inflation.
Investments
• The annual subscription limits will remain
at £20,000 for ISAs, £4,000 for Lifetime
ISAs and £9,000 for Junior ISAs and
Child Trust Funds until 5 April 2030.
The government has confirmed it will
not proceed with the British ISA due
to mixed responses to the consultation
launched in March 2024
• The starting rate for savings will be
retained at £5,000 for 2025/26
• The Enterprise Investment Scheme and
Venture Capital Trust schemes have now
been extended to 2035.
The changing face of
retirement – as the
traditional ‘hard-stop’ is
consigned to history • Catalysed by the 2011 abolition of the
Default Retirement Age, a combination
of economic and socio-demographic
trends are changing people’s outlook to
retirement; and this, in turn, is heightening
the need to adopt a more fluid approach to
retirement planning.
• Research8 suggests the traditional ‘hard
stop’ retirement is increasingly being
consigned to history, with 69% of UK
adults now believing retiring in your sixties
will become a thing of the past. Another
study9 found that 41% of adults expect
people never retiring to become the norm
over the next 10-25 years.
• Mind the tax
There are undoubtedly good reasons
why people continue working beyond
retirement age, not least the financial
benefits. Some enjoy the sense of purpose
or structure a job provides, while others
see it as a way of keeping active and
sociable. This trend to a more gradual
transition from the world of work, however,
does increase the need to carefully
consider any tax implications associated
with earning an income while potentially
taking, or delaying, pension benefits,
particularly in relation to tax brackets.
Whenever and however you want to stop
working, proactive preparation is the key to
a happy and comfortable retirement.
Pension pulse – a reminder for ‘25
Aside from the change announced about
bringing unused pension pots into IHT
from April 2027, other announcements
relating to pensions were thin on the
ground during the Budget speech.
The Chancellor confirmed that the State
Pension will increase in line with average
earnings, rising by 4.1% in April 2025. The
new flat rate State Pension is expected to
rise to £230.25 a week, the old basic State
Pension is anticipated to rise to £176.45
each week.
Reminder about current pension
allowances and thresholds:
• The Annual Allowance (AA) threshold
is £60,000
• The Money Purchase Annual Allowance
(MPAA) and the minimum Tapered
Annual Allowance (TAA) are £10,000
• The adjusted income threshold for the
TAA is £260,000
• The Lifetime Allowance and charge
have been abolished
• The maximum Pension Commencement
Lump Sum (PCLS) is £268,275.
A significant shift - The end of the IHT exemption for pension
pots will prompt some rethinking of
retirees’ decumulation strategies as
people focus on using their pension for
retirement income rather than estate
planning purposes. The Chancellor
expects 8% of estates will be impacted
annually. It really is a significant shift
worth planning for.
End of tax year IHT recap – gen up on gifting allowances
Recent HMRC data shows that IHT
receipts rose to £4.3bn during the
period from April to September 2024,
a £400m increase on the same period
the previous year.
With 27% of 18 to 34-year olds
(1.1 million people) holding out for
an inheritance before going ahead
with major life events and 12% of
UK adults regifting to their children,
grandchildren, or other family
members, here’s a reminder of the vital
gifting numbers to gen up on before
the end of the tax year:
You can make gifts worth up to £3,000
in each tax year. These gifts will be
exempt from IHT on your death, even
if you die within the seven-year period
that otherwise applies to lifetime gifts.
You can carry forward any unused
part of the £3,000 exemption to the
following year but if you don’t use it in
that year, the exemption will expire.
Certain gifts don’t eat into this annual
exemption and don’t give rise to IHT,
e.g. wedding gifts of up to £5,000 for a
child, £2,500 for a grandchild (or great
grandchild) and £1,000 for anyone
else. Individual gifts worth up to £250
per year per recipient are also IHT free.
While these are relatively small sums,
you should use these up where
possible without compromising your
own financial security, to gradually
reduce your overall estate. A settled
pattern of gifts from surplus income
can also be made. Conditions apply,
and advice would be needed to ensure
that the gifts are made and evidenced
in the right way.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
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