Marginal Gain – June 2023

As I sit and type, we are having a month of mixed news, inflation has stayed the same, but food inflation has gone up and later today it is expected that the Bank Of England will make another increase in base rate in order to get inflation down in the coming months. Our articles in this month’s newsletter reflect the need to talk to your adviser about diversification, there are other opportunities in the market that can offer potential growth when times are tough, so please keep up with your reviews and talk through alternative investments or if you are finding things tough.

Wendy Devlin

Head of Advisory Services


Offsetting fiscal drag


The gradual reduction of disposable income due to inflation and changes in tax brackets, or frozen tax allowances, will weigh on your finances, causing ‘fiscal drag.’

By implementing various strategies, you can potentially reduce the impact of fiscal drag on your investments and increase your chances of achieving your long-term financial goals.

The worst thing to do is – nothing. By succumbing to inertia, you are more likely to pay increased levels of tax, whether in relation to Income Tax due to the frozen personal allowances and reduced Dividend Allowance, or other taxes including Capital Gains Tax (CGT) and Inheritance Tax (IHT).

The good news – there are legitimate mitigation strategies and, depending on your personal circumstances, allowances and tax reliefs available. By using your Individual Savings Account (ISA) allowance or making your pension contributions early in a new tax year, you could benefit from extra potential growth, as well as receiving an element of your tax relief earlier on your pension and any pension contributions. Consider tax-efficient investments, diversify your portfolio and rebalance regularly to ensure your asset allocation remains aligned with your objectives and attitude to risk; rebalancing will help minimise the impact of fiscal drag over time.


Financial wellbeing – engage your mind

Having your finances in order brings tremendous peace of mind. Financial wellbeing varies from person to person but fundamentally encompasses having security around money, now and in the future, plus knowing what makes us happy, and having money goals in place to achieve this happiness1.

The combination of money and mindset is crucial, findings show that even if an individual feels confident about their money ‘building blocks’ (income, long-term savings, safety net, debt awareness, assets), they won’t achieve optimal levels of financial wellbeing without a well-considered and focused mindset too; think ‘happiness, future self, written plans, long-term perspective’.

Aegon’s Wellbeing Index also shows that being a high earner doesn’t necessarily equate to being a long-term saver. If a saver has a connection to their future self and understands what gives them joy and purpose, they find long-term perspective. Being one of the highest earners doesn’t necessarily mean that they have long-term perspective. ‘The wealth accumulator’ persona for example has a high level of wealth now and probably in the future, but when it comes to creating a healthy financial mindset, they might not have spent the time thinking, ‘what’s it all for?’ and truly connecting with the mindset element of financial wellbeing.

1Aegon, 2022


Over 50 and re-joining the workforce? Remember your pension

It’s estimated that the number of people aged 50 to 64 who are economically inactive sits at 3.6 million, which is 300,000 higher than pre-pandemic2. There is no doubt that the UK’s economic growth will, in part, be reliant on getting the over-50s back into work.

If you retired early but are now having second thoughts and considering re-joining the workforce, here are a few essential pension tips:

  • Find out if your new employer has a waiting period before auto-enrolling you into its workplace pension scheme. You could choose to opt into the scheme earlier to benefit from additional contributions
  • Check how much you can save in your pension. As announced in the Budget, tax relief on pensions has changed. If you have any questions about your pension and how much you can contribute, please get in touch
  • Check whether your employer will match any additional contributions you make over your minimum 4% level
  • Your employer may offer you the option to exchange some of your salary in return for a pension contribution, which the employer then pays into your pension scheme along with their pension contribution. This can prove to be extremely tax-efficient
  • Decide how you want your contributions to be invested and select a realistic retirement date
  • If you’re self-employed, set up a personal pension
  • Don’t forget to review your other pension pots and investments to take account of your changed circumstances and ensure you have sufficient to be able to retire comfortably when the time comes.

2Centre for Ageing Better, 2023


Are you a financial secret keeper?


Research3 has shown that nearly two in five people in a relationship in the UK are committing ‘financial infidelity’ which includes ‘deceptions’ such as having secret credit cards or savings accounts and hiding purchases from partners. Although just over two thirds of couples (67%) have a joint current account and 51% have joint savings accounts, 38% of those surveyed have ‘money stashed away’ that their partner is unaware of. For 32% of respondents, their motivation for having a secret account is because they want to keep some control, or maintain some independence of their finances, while a quarter (25%) want to be able to treat themselves without their partner knowing.

3Aviva, 2023


Author: Richmond House