At last, the coalition’s brutal spending cuts have been revealed. Critics claim that the measures represent “an irresponsible gamble”, while the government insists that they are necessary to keep the costs of servicing the national debt under control – we already pay £43bn a year in debt interest. Will you be taking to the streets in protest or adopt a more practical approach to surviving the ‘sober decade’? Here are just some of the key areas where your financial adviser can help and advise you.
A big fat spending review
Just as the government is seeking to achieve radical ‘efficiencies’, there is no better time for you to make your own thorough analysis of all your income and expenditure. It’s important to review your current mortgage, protection, pension and savings plans to ensure they are aligned with your current needs and on track to achieve all your financial goals.
Considering ‘salary sacrifice’
By reaching an agreement with your employer to ‘sacrifice’ some of your salary (in exchange for enhanced pension contributions, childcare vouchers, car leasing or even additional holiday) you could protect yourself from higher income tax, rises in N.I. contributions and cuts to child benefit. One example: From 2013, someone earning £45,000 with two children will lose £1,752 each year in child benefit at today’s rates. A pension contribution of £1,500 only costs £975 (due to tax relief) and child benefit is retained. Result: £1,500 more for the pension and an extra £777 in the pocket. (Self employed people can achieve similar results by adjusting annual profits.)
Planning for retirement
The amount that investors can save tax free into a pension falls to £50,000 from next April and the lifetime allowance will be reduced from April 2012. High earners, especially those in final salary schemes, need to review their pensions by next April to ensure that they do not receive an unexpected tax bill. Meanwhile, the state pension age rises to 66 by 2020.
Helping the children
Proposals to scrap the cap on student fees in England are being considered but Child Trust Fund payments, which might have at least contributed to costs, cease at the end of the year. Planning to help your children to deal with potentially substantial student debts is best begun as early as possible.
These are just some of the important considerations that should be looked at, for a more detailed review, please contact us.