In a bold move aimed at incentivising individuals, particularly healthcare professionals, to extend their working years, the UK government announced the abolition of the Pension Lifetime Allowance (LTA) in the 2023 Autumn Statement. Set to take effect from April 6th, 2024, this decision seeks to encourage more people, especially doctors, to remain active in their professions for longer durations.
Abolishing the LTA
The abolition of the LTA is expected to benefit individuals with substantial retirement savings, as well as public sector workers with sizable final salary schemes. However, amidst the anticipation of this policy change, concerns have been raised within the industry regarding the pace of implementation and its potential implications for customer advice and outcomes.
Industry experts have called for clarity and guidance on the new rules and regulations, urging the government to provide further details to facilitate a smoother transition. Some industry leaders have even advocated for delaying the implementation of the abolition until 2025 to ensure a more seamless adjustment period.
Despite the abolition of the LTA, complexities persist within the pension system, including caps on tax-free lump sums and lump sum death benefits, adding layers of intricacy to navigating the new regulations.
Review of State Pensions
In addition to the abolition of the LTA, the government's 2023 Review of State Pensions shed light on the challenges posed by increasing life expectancy and the fiscal sustainability of the State Pension. As the retirement age is set to rise to 67 between 2026 and 2028, questions arise regarding the government's commitment to intergenerational fairness.
The triple lock mechanism, which guarantees State Pension increases by the highest of inflation, average earnings growth, or 2.5%, continues to be a focal point of discussion. Despite criticisms regarding its cost and fairness, both the Conservative and Labour parties have shown reluctance to reform the triple lock agreement, emphasizing the importance of safeguarding pensioners' financial security.
It remains crucial for individuals to stay informed and proactive in managing their pension plans amidst evolving regulations and policies.
Shampa Roy-Mukerjee is an Associate Professor (Economics) and Director of Innovation and Impact, at RDSBL, UEL.
Why Pensioners have to pay income tax now
The 2024 budget has stated the the triple lock system will be secured which allows the state pension to increase in line with inflation so that pensioners are able to afford the rising cost of living. This rise has now set the state pension to, £11,502 from now.
The tax threshold is remaining steady at £12,570, so those who only receive the state pension will have no changes. Those who receive this as well as an additional private pension of £1,068 or more will be pushed into the tax bracket and have to start paying income tax.
Pensioners worry for their finances
Clarke and Peacock estimate that around 650,000 pensioners will now have to pay income tax.
The financial worries for pensioners now increase with the added tax and being able to afford the cost of living is already difficult on their low incomes.
Many worry about what they will have to do for this new rule. HMRC have stated that there will be no need for self-assessments as this is an automatic payment. However, the likelihood of incorrect tax codes means that claiming back overpayments will make contacting HMRC a necessity. This is a frustrating and worrying time for pensioners as they have to navigate their new finances.
Each year the government reviews the minimum wage and in April each year they are updated.
This year there will be a rise which will increase over 1 million people who are on the minimum wage currently.
The House of Commons Library states that the rates are provided in regulations made by the secretary of State with parliamentary approval and is based on the recommendation of the Low Pay Commission (LPC).
The new Minimum wages
For those who are over 21 the minimum wage will rise to £11.44 which is a £1.02 increase.
For 18-20 year old the new minimum will be set to £8.60 which is a rise of £1.11.
For 16-17 years old their new rate will be £6.40 which is a rise of £1.12.
The rate for apprentices will be £6.40 which is a rise of £1.12.
What is the average living wage needed in the UK?
The UK Government update the minimum wage rates each April to suit the economic situation and inflation at the time. However, does this allow people a liveable wage and is there a gap?
Statista discovered that the average voluntary living wage is £12 across the UK, in London this rises to £13.15.
In 2023 the Joseph Rowntree Foundation found that of the 14.4 million people roughly living in poverty, 8.1 million of these were working adults.
Their date found that for a couple with two children if they were living in poverty they would need an extra of £6,200 a year to reach the poverty line.
Despite the minimum wage increasing there is still a worry as inflation is not slowing quick enough and rental prices are rising faster than the growth of wages.
How does this compare to other countries?
The parliament reports their comparison with 25 other OECD countries and the UK were reported with the 8th highest adult minimum wage in 2022. This takes into account the varied cost of living in each country.
This year the EUROS begin again in June, hosted in Germany and set to increase spending across the UK again.
In 2022 the UK viewers of the Euros reached 17.4m and globally there were over 300 million viewers.
Where do people spend the most money?
Pubs and restaurants are welcome hosts to fans across the country who are more willing to spend around the time of the sporting event.
Lloyds Bank data found that in 2020, the year England were in the finals, spending in pubs and restaurants increased by 52%.
As well as this, spending in supermarkets increased by 26% in the time between June and July that year.
The economic impact
In 2022 during the UEFA Women’s Euro spending was at a high as well with an £81m economic impact for host cities across the Country.
They found that there was £44m in spectator spending around matchdays as well as trips to host cities.
Domestic and international visitors made over 552,000 day and over night trips to these cities.
Sporting events have been proven to lift the spirits of the public and in effect increase their spending which boost business and therefore the economy.
The economic impact is always greater for the host country which is why the bid for this is intense and begins early. England, Northern Ireland, Wales, Scotland, the Republic of Ireland and Turkey are already bidding for the host role for 2028 reported from Sky News.
Is this a short-term boost?
While businesses definitely prosper from large sporting events and increased spending this effect does usually die down. Once the celebrations disappear the spending slows and could even decrease.
If the public have overspent during the event then they may have the next few months of cutting back which leads to inconsistent spending.
The survey
The British Social Survey has been running since 1983 to track the satisfaction of the British public for the health service.
In 2023 only 24% reported satisfaction with the NHS due to waiting times and staff shortages being the biggest concerns.
This is a record low since the poll began and has recently dropped 29% points from 2020 .
Government funding for the NHS
Health care Funding reports that 86% of government funding goes towards the NHS for day-to-day costs including medicines and paying staff.
In 2023/24 the spending amounted to £163bn in cash terms which is expected to increased to £192bn for the year 2024/25.
Many people have called for a shift in focus for spending claiming that the government needs to re-evaluate where the money goes in order to improve the NHS.
The Complaints
Waiting lists are at a high with people waiting months if not years before they receive treatment. GPs making referrals are often delayed as there is no capacity within the required outpatient department.
Waiting times in the hospitals are also creating anger with the public this is partly due to the poor patient flow where patients are not being transferred quickly as the social care lacks the capacity. Patients remaining in hospital means people cannot be seen until the space becomes available.
Staff shortages lead to a wide array of problems that are noticed by the public leading to longer wait times and unsatisfactory care for patients who require that extra supervision.
Can it be fixed?
The government has often relied on the role of the private sector to take on patients to reduce waiting lists and reduce the pressure on hospitals.
However a survey from BMA discovered that with this plan 60% of private practice doctors were then unable to provide care to their patients at the time.
The BMA also states the need for more encouragement in the medical fields for people to pursue careers within it. More options need to be presented including flexible working as often those who enter have to leave due to inflexible options.
Taxes for an improved NHS?
Is having a specific tax which covers only the costs of the NHS a beneficial way for the NHS to improve?
The survey showed that 48% of people would support an increase in taxes to allow for increased spending on the NHS.
42% of people would prefer to maintain the level of taxes and NHS spending.
Only 6% would want reduced taxes to spend less.
Would you be willing to pay a tax to improve the NHS?
Personal Finance Impact of a Labour Government.
It’s highly likely to be election year this year and if the polls are accurate then Labour are in the driving seat to form its first government for 14 years with Sir Keri Starmer as prime minister, which could mean some significant changes for your investments and pensions.
The latest YouGov/Times voting intention poll placed |Labour on 44%, with the Conservatives lagging behind by some distance with just 19% of those asked saying they would vote for them.
This is the same share of the poll they received following the aftermath of Liz Truss’ disastrous mini-budget two years ago.
Labour’s simplifying ISAs plan
Earlier this year Labour released a report Financing Growth: Labour’s plan for financial services, which outlined its plans for how your personal finances would be handled if it won power.
The savings landscape is to be reviewed, and a major part of the plan to reinvigorate the capital markets is to simplify ISAs to make it easier for people to feel the benefits of saving.
This is to be done through the increased utilisation of stocks and shares ISAs.
Although the report does not offer any more details of how this would happen.
It’s a direction that would welcomed by some major players in the financial services market such as AJ Bell, who have long advocated ISA simplification moving away from the multiple products of today’s system to a single ISA vehicle.
Pensions to be reviewed
Labour welcomed auto-enrolment for pensions that was introduced by the coalition government in 2012, and it will re-evaluate the whole pension model to review whether the current framework delivers sustainable retirement incomes.
A future Labour government would work with industry and consumer groups to ensure that savers are getting the best returns.
Also to identify and tackle the barriers to pension schemes investing more into UK productive assets, for example cultural and regulation-induced risk aversion.
All types of pensions will be assessed, including the employer-sponsored defined benefit schemes, where the amount is based on how many years you have been a member of your employer’s scheme, which is more typical in the public sector.
For Local Government Pensions Schemes, Labour will look to gauge the different models for asset pooling in pensions.
This includes in-house fund management at the pool level, with the aim to deliver higher returns for savers and to increase investment into more productive assets.
Also personally subsidised defined contribution schemes are to be reviewed, where Labour will hand The Pensions Regulator (TPR) new powers for consolidation if schemes fall short of offering sufficient value to its members.
The TPR will also be asked to provide guidance on fund and strategy suitability over your pension pots, and the minimum thresholds for scheme performance will be kept under review by a Labour government.
Labour also plan to bring in an opt -in scheme for your defined contribution pensions, where a proportion of its assets can be directed into UK growth assets that can be split to areas such as venture capital, small cap stocks and infrastructure investment.
A committee would be set up comprising of private investors who will draw up a list of venture and small cap funds that are supported by British Patent Capital, which is the largest domestic investor in British venture growth opportunities.
The next stage is that institutional investors will be asked to allocate a small proportion of their funds and your money to the opt-in scheme.
Consumer protection to be strengthened
Labour will empower payment service providers to delay any payments that they believe to be suspicious, this would support the work in this area which is already being carried out by the Financial Conduct Authority (FCA) and the Payment Systems Regulator.
The buy now pay later market (BNPL) is growing doe to the cost of living crises, and Labour aim to increase regulation over BNPL, something which providers have been calling out for.
The report said that Labour has laid out a plan for regulation to shield unprotected consumers, having spoken to influencers in the sector which it said has received broad support, but the details of the plan were not revealed.
The advice gap also needs to be closed and Labour said that it supports the ongoing work in this area of the FCA, such as addressing the advice gap through the Advice Guidance Boundary Review.
A Labour administration will closely monitor the progress in closing the gap, as its report said that only 8% of UK adults have received expert financial advice.
If you are already receiving your pension or you are keen to keep on track of your pension plan options then you might be wondering what the triple lock system means.
Triple lock pension
This is the system which maintains the rising pension payments so they stay in line with the rise of inflation and cost of living. The triple lock pension ensures that the state pension pot rises with the average earnings growth, inflation or 2.5%, whichever one is highest.
This systems allows pensioners who are relying on the state pension to be able to afford rising prices without worrying.
The BBC reports that Jeremy Hunt has promised that the triple lock system will remain apart of the conservative manifesto if they win the next election.
This promise is no surprise as pensioners are a large portion of the conservative voting demographic.
The state pension cost £110.5bn in 2022-23 which is just under half of the total government spending's on benefits.
The Office for Budget Responsibility estimates this will grow to £124bn this year.
How does this affect me?
If you are currently receiving state pension or are going to start in the near future you can feel secure knowing you state pension allowance will continue to rise in line with the cost of living prices.
This also mean that the cost of paying for these benefits is going to increase each year as more people reach retirement age than the young working population.
The new triple lock system could mean paying income tax for many pensioners.
If you are thinking about taking out a loan make sure you are considering it carefully and know what you are getting into. With any type of loan there are serious implications if you miss any repayments and find out you cannot afford to pay back to loan you agreed to.
To take out either of these loans you will have to have a good credit score so start by improving that if necessary.
Secured Loan
These are sometimes called Homeowner loans, second-charge mortgages or home loans.
If you take out a secured loan you will have to place a valuable asset as collateral, this is often property such as your house or a car depending on the value. This gives the lender security if you fault on your repayments.
If you cannot keep up with the repayments then the lender can sell you house or other valuable asset you placed as security.
When you apply for a secured loan you will receive the money quickly directly into your bank account. You will often have lower interest rates on a secured loan as you have given the lender security in the form of assets.
You can choose how long you have to pay back this loan and often giving yourself longer will be best as the monthly payments will be lower however the overall interest is then higher.
Personal Loan
For this loan you will not have to name any valuable assets however, you will be able to borrow less with a personal loan, usually up to £25,000.
If you miss a repayment or find out you cannot pay the lender back over time then you will face legal consequences.
If you do manage to meet the agreements then this could improve your credit score.
You can choose how long you have to pay back this loan and often giving yourself longer will be best as the monthly payments will be lower however the overall interest is then higher.
Taking out a loan is a serious financial decision and should not be made lightly, make sure you have all the information and are confident you will be able to pay back your loan in full.
So you have found your dream property and have had your offer accepted, now you are ready to handle the nitty gritty mortgage details.
You will have to find the best mortgage deal that works for you and then you can apply online or over the phone. You may choose to go with a broker to help you get the best deals.
Do you need a mortgage broker?
A broker is a qualified and regulated mortgage advisor. They should remain unbiased and be there to help you wade through all the offers and find you the best deal for your situation.
Having a broker will save you time and effort trying to find the best deal, they will also be able to handle the negotiations with the lender for you. A broker will help you understand the mortgage rates and know what you will need.
Make sure to be upfront with the broker about your finances and credit so they can do their job properly.
You either pay them a broker fee which is usually around £500-1000 or they will receive a procuration fee from the lender, which won’t affect your total.
If you are confident you can find the best deals yourself then you can skip this step and move on.
What you need for your application
You will need original copies of all the forms listed below, make sure you have these ready before starting the process, this will help you speed things up.
- A form of ID, e.g. a passport
- Details of your current employment
- At least 6 months’ worth of payslips
- Proof of current address
- Proof that you have the deposit
- Tax return forms, if you are self-employed
- Your latest P60 tax form
A mortgage in principle
This is a conditional offer from a lender with no guarantees this will go through to completion. This helps buyers to have a sense of confidence during the process whilst the lender continues with their checks
The lender will complete credit checks, these could damage your score so make sure not to have too many in short space of time.
‘Soft’ credit checks leave a less visible sign to the next lender so check which type they are using.
Don’t rely on your existing bank or building society as this vastly limits your options and cuts the market short.
Fees
On top of all the big payments you’re making to buy a house it is important to factor in all the other fees you have to think about too.
Arrangement fee
You will pay this to the lender and it can go up to around £2000 which you can pay upfront or add on to the price of your mortgage. If you pay upfront be aware that this is a non-refundable sum even if your offer falls through.
Booking/reservation fee
Some lenders will charge this fee to secure a fixed-rate, tracker or discount deal. This will be around £100-200 and is again non-refundable which you can pay upfront. Sometimes this will be rolled into the arrangement fee and won’t be a separate charge.
Valuation fee
The lender will carry out checks on your chosen property to determine the value in case you miss payments and the property is repossessed. The cost of this will depend on the property value. You can also ask for a survey at an extra cost which will check for any hidden damages and structural problems which is especially important if you are buying an old house.
Legal fees
This is paid to your solicitor and covers all the legal work needed when buying a house including, conveyancing which searches local authorities data for hidden damage on the property. This will cost roughly £500-1500.
Stamp duty
This is a tax paid to the government which some developers will offer to pay if you are buying a brand new home.
The price depends on the property value.
If the property price is between £300,001 to £925,000 then you will pay 5% in stamp duty.
The application process in total can take months to reach completion which is why before you start, it can be helpful to make sure you have all the information, are sure you can cover all costs and have all the correct documents.
Happy Mortgage hunting!
If you have decided that your child is ready for their first bank account and ready to learn about financial responsibility then below are some great options for junior bank accounts.
Most junior bank accounts are accessible for children between 11-17 and will need a parent or guardian to be a joint account holder. Your child won’t be able to open a bank account on their own until they are at least 18.
We are living in a cashless world and so if you give them pocket money this would be most beneficial being sent into a bank account, as well as being a secure way for your child to spend.
If your child is asking for more financial freedom and you think they are ready to learn then a junior account is a great option for them.
The benefits of Junior bank accounts
- Having a bank account is a great way to teach children financial responsibility as they will not learn this at school.
- Teaching your child healthy spending habits from a young age will help them when they are adult and have their own money, they can carry these habit on.
- Having a bank account will help your child feel a sense of independence and they can take their money seriously
- They can learn how to budget and prioritise what they want to spend on.
A study done by Cambridge University found that children’s financial habits are formed by 7.
This is why it is so important to teach financial responsibility from a young age.
Parent controls
- Junior accounts will have spending controls to protect you and your child.
- There will be no overdraft feature so there is no risk of your child getting into debt, when their money is gone, it’s gone.
- Some accounts will block certain places such as pubs, bars and off-licences so the card will not be able to be used here.
- Some will set spending limits so your child cannot overspend.
- You will be able monitor the spending habits of your child through a mobile app which you will both have access to.
At 18 the account will automatically become an adult account and your child will have full freedom. It is best that they have learnt how to correctly handle their money with your help before this transition happens.
