Tax warning: Britons urged to utilise ISA and pension allowances amid tax raid fears
State pension: Expert discusses possible 'significant increase'
The end of 2020 is in sight, which, after the devastating events this year, is a welcome relief for many. With the new year on the horizon, many may well be setting their New Year’s Resolutions for 2021.
Ahead of January 2021, AJ Bell analysts Tom Selby and Laith Khalaf have outlined a number of financial resolutions which people could consider to get the most out of their savings and investments.
Among the suggestions, Mr Khalaf highlighted the ability to utilise ISA and pension allowances.
“Something which is pretty much nailed on for 2021 is tax rises,” he said.
“Don’t know where, don’t know when, but the government needs to repair its finances and taxation will play a big part.
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“The OBR reckons the government needs to raise anywhere between £27billion and £102billion by 2025/26, depending on what your definition of balancing the books is.
“The March Budget looks like it could be a platform for the Chancellor to start to clean up public finances, though clearly this depends heavily on the course of the pandemic over the next few months.
“We don’t know where the axe will fall, but capital gains tax looks like a prime candidate for a hike, after an OTS report commissioned by the Chancellor recommended such a move last month.
“Higher rate tax relief on pensions could also be a tempting target for the Chancellor, though it would be fiendishly complicated to implement, not to mention deeply unpopular.
“In a recent AJ Bell survey of DIY investors, one fifth of those are planning to invest more next year said that the potential withdrawal of tax reliefs was a key motivation.
“The tax breaks afforded by pensions and ISAs will become even more valuable if taxes rise and investors should look to maximise the savings they hold within these shelters, outside the clutches of the taxman.”
Tom Selby, senior analyst at AJ Bell, also had a suggestion regarding pensions – and that is to check pension plans are “on track”.
“You should be able to able to view your private pension (or pensions) online,” he said.
“Usually these sites will show a range of information including the value of your fund, how much you have paid in, how much investment growth you have enjoyed and the costs and charges you have paid.
“Some will also have tools which allow you to estimate how much your pot could be worth at your chosen retirement date, based on assumptions around investment growth and contributions.
“Those who have lost their jobs or incomes due to coronavirus may have been forced to stop saving as a result.
“This isn’t something to panic about, but getting back on the retirement savings horse as soon as you can afford to is really important.
“As a very rough rule of thumb, aiming to save roughly half the age at which you start contributing as a percentage of your salary is a good place to start.
“So, for example, if you start contributing to a pension at age 25 that implies a total contribution of 12.5 percent, while delaying until age 30 means you might need to set aside 15 percent.
“If that rule of thumb sounds overly ambitious, saving something is better than nothing, as your contributions will be boosted by upfront pension tax relief, as well as matched employer contributions in your workplace scheme.”
Consolidating old pensions into one place is another suggestion some may consider.
“According to the DWP, workers switch jobs on average 11 times during their careers – with each job potentially coming with a new, slightly different pension arrangement,” Mr Selby said.
“It is estimated there could be 1.6 million ‘lost’ pension pots in the UK representing £19.4billion of retirement assets – or around £13,000 per pot.
“Tracking down these old pots makes sense for a number of reasons. Firstly, knowing how much you have saved at the moment will help you determine how much you might need to save in the future to enjoy the retirement you want.
“Secondly, once you have located any old DC funds you can consider combining them with your existing provider.
“This can not only make your pension easier to monitor and manage, but you could also benefit from lower charges, greater investment choice and more flexibility when you decide to access your fund.
“Before you transfer any old pensions you have, check whether they have any guarantees attached as these could be lost if you switch to a new provider.”
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