If you have found yourself feeling increasingly pessimistic about your finances over the past few years, your feelings are not unwarranted.
Statistics from Champion Health reveal financial pressure is the most common cause of stress for 37% of employed individuals, overtaking other stress factors like relationships, health, and work.
What’s more, the Mental Health Foundation reports that, in a survey of 3,000 adults conducted in November 2022, 10% said they felt “hopeless” about their financial situation, and 34% experienced financial anxiety.
Sadly, these figures may be unsurprising to you. With inflation reaching double figures in 2022 and remaining so in the first few months of 2023, the Bank of England (BoE) raising the base rate to reach 4.25% in March, and energy prices remaining in the thousands each year, few people are feeling financially confident at the moment.
As we enter the 2023/24 tax year, though, the tide may be beginning to turn. While you may be getting used to feeling worried about your finances, there are plenty of signs that better times could be ahead for everyone – no matter if you’re employed, retired, or somewhere in between.
Here are three reasons to be cheerful about your finances in 2023.
1. The FTSE 100 has rebounded impressively after periods of volatility
As you can see from the below graph representing the FSTE 100 index, market instability has prevailed over the past three years.
Source: London Stock Exchange
Here at Atherton York, we have many clients who became worried about their investment portfolios in light of the volatility that hit markets in 2020. Since the pandemic stabilised, additional factors, like the Russian invasion of Ukraine, contributed to further fluctuations.
Although past performance is not a reliable indicator of future performance, it’s important to remember that markets usually rebound – and after significant downturns can come surprisingly impressive market performance.
For instance, our medium-risk portfolio, defined as a 60/40 allocation across equity and bonds, has delivered the following returns in the past.
So, it is vital to remember that while your portfolio may weather market storms, it is highly likely to rebound and generate positive returns once again. Contact us at Atherton York if you have questions or concerns about your portfolio’s performance.
2. House prices are forecast to fall significantly in the coming year
Throughout 2022, house price growth remained strong in most areas of the UK, despite the ongoing cost of living crisis.
According to the Office for National Statistics (ONS), UK house price growth rose by 9.8% in the year to December 2022. However, a month later, the ONS reported that in the year to January 2023, house price growth increased by just 6.3%, signifying a notable easing in growth across the property market.
What’s more, a report from The Times Money Mentor states property site Zoopla saw an up to 50% drop in housing demand in the year to February 2023. As buyers hesitate due to cost of living concerns, house price growth is expected to slow, and perhaps even contract, in 2023.
Former chancellor Kwasi Kwarteng also reduced the Stamp Duty Land Tax (SDLT) in his September 2022 mini-Budget, reducing the amount of tax some homebuyers will pay until April 2025.
All these indicators point to the fact that if you are looking to buy a new home or help the next generation onto the ladder this year, you could be in a more fortunate position than if you’d done so in 2022.
3. Pension allowances are set to become more generous
As you may have read, in his spring Budget, chancellor Jeremy Hunt made significant changes to pension allowances that are coming into force in 2023/24.
Indeed, both the pensions Annual Allowance and Money Purchase Annual Allowance (MPAA) are set to increase this year. Plus, in an even more significant move, Hunt set the Lifetime Allowance (LTA) tax charge to be removed altogether in April; it will then be abolished in a further Finance Bill.
The Annual Allowance is rising to £60,000
In the spring Budget, Hunt raised the pensions Annual Allowance from its previous rate of £40,000 a year to £60,000 starting on 6 April 2023.
The Annual Allowance marks how much you can contribute into your pension(s) each year while still receiving tax relief from HMRC. This includes employer pension contributions.
So, now that the Annual Allowance is rising, you could increase your yearly tax-efficient pension savings from 6 April onwards, and enter retirement with a more substantial pot in the years to come.
The MPAA will increase to £10,000
The MPAA is triggered when those flexibly accessing their personal pension recontribute money back into the pot.
In the 2022/23 tax year, when the MPAA was triggered, an individual’s Annual Allowance was reduced from £40,000 to £4,000. This means that once you’d flexibly accessed your pension, you could only reinvest £4,000 a year (including employer contributions) while benefiting from tax relief.
Fortunately, Jeremy Hunt has increased the MPAA from £4,000 to £10,000 starting in 2023/24. So, even if you’ve started drawing your pension flexibly, you will now be able to recontribute up to £10,000 a year into your pot.
The Lifetime Allowance will be removed altogether
Most notably, the LTA, which stood at £1,073,100 in 2022/23, will no longer apply to pensions from 2023/24 onwards.
As of 2022/23, if your pension(s) exceeded the LTA, you would have been taxed at the following rates on a pension withdrawal:
55% on funds drawn as a lump sum
25% on funds drawn as income. This would be on top of your marginal rate of Income Tax.
Positively, these rules will no longer apply from 2023/24 onwards. You will be able to draw your pension, no matter the wealth accrued, at the regular rate of tax applied to most private pension withdrawals – without worrying about an additional LTA charge being placed on top. It is important to note that the maximum PCLS lump sum has been retained at 25% of £1,073,100, so it could still be wise to speak to your financial planner before drawing a lump sum from your pension pot.
All these allowance changes could put a smile on your face this year, as they will undoubtedly boost your tax-efficient pension saving opportunities.
So, despite the ongoing cost of living crisis, you could find yourself better prepared for retirement, and gain ample peace of mind this year as a result.
Get in touch
To discuss the opportunities mentioned in this article, or any other financial matter, get in touch. Email email@example.com or call us on 0208 882 2979 for more information.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.