Heading into 2018 with money on our minds

As a result of growing political instability in the UK, people are becoming more and more concerned about their wealth. That is, how they can go about maintaining it, but also about how they can maximise any opportunities around savings and investments.

We spoke to one of our Partners, Jamie Smith, about the areas he believes people will be considering as we head into the New Year.

Markets
Anyone who plans to access any stock-market linked savings within the next few years should review their portfolios and the underlying risks involved. A common example of this is those who are planning to retire over the next couple of years. These people may want to consider de-risking their pension funds and moving them into safe, less volatile asset classes. Some pension providers will do this automatically, which is known as ‘lifestyling’, but certainly many pension plans will not have this function.

Those who have a longer term investment horizon and don’t plan to access and spend their savings for at least 5-10 years may not need to be as concerned, although it is still worthwhile reviewing their portfolios.

Pension savings
There is a possibility that a change to pensions tax relief will be introduced this year. This is most likely to be in the form of a reduction to the annual allowance, which is the amount that can be saved into a pension scheme and still benefit from tax relief within a given tax year. Although a reduction would not affect the vast majority of people, those who can afford to maximise pension funding should consider doing so before any new restrictions are introduced.

Interest rates
2017 saw a 0.25% interest rate increase in November and these rates are widely expected to rise again over the course of 2018.

A rise in interest rates mainly affects those with mortgages because it can result in potential increases to their monthly payments.

However, it’s not just borrowers who may be adversely impacted. Those who are invested in government or corporate bonds may see the value of their investments affected. Increases to interest rates tend to have the opposite effect on the prices of bonds, which may fall as a result. Again, this might be another reason for people to review their pensions and investments as it’s important to understand what the impact could be on the value of their savings.

The dividend allowance
The dividend allowance will be cut from £5,000 to £2,000 from 6th April 2018. This means that shareholders and company owners could pay more tax on the dividends they receive. A basic rate tax payer could potentially pay up to £225 more in tax and a higher rate taxpayer could pay £975 more.

For those that can afford to do so, they should consider saving into a scheme where they will benefit from income tax relief to offset the extra tax, such as a pension.

The value of your investment can go down as well as up and you may not get back the full amount invested.