Efficient Wealth Update – August 2021

Bereavement benefit changes for cohabiting couples

In July, on behalf of the Department for Work and Pensions, Baroness Stedman-Scott set out plans to extend bereavement support to cohabiting couples with children. Under the plans, Widowed Parent’s Allowance and Bereavement Support Payments will be extended to surviving cohabiting partners with children who were living with their partner at the time of death where previously a surviving parent could only claim the financial support if they had been married or in a civil partnership at the time of their spouse or civil partner’s death.

The change is estimated to extend the right to claim to more than 22,000 families, totalling an additional £320 million in support for bereaved children over the next five years. Once approved by Parliament, the changes will apply retrospectively from 30 August 2018, with any backdated payments being made as lump sums.

Baroness Stedman-Scott summarised; “The death of a loved one is devastating and can also come with significant financial implications.” The additional support will be a lifeline to many families during difficult times.

The economic impact of a Pingdemic

As we inch closer towards normality in our everyday lives, it seems everyone is either planning to or is taking a holiday this month, however, now a new threat looms poised to scupper plans – a Pingdemic! The same government track and trace technology that once optimised and rolled out allowed us to keep a metaphorical lid on the number of knock-on exposures to Covid-19 has, now that most of us are double-jabbed and behaving sensibly, proven to be, in the opinions of some, too overbearing.

In the week to 14th July, over 600,000 people in the UK were told by the NHS Covid-19 app to self-isolate, a number so high that it threatened to disrupt food and fuel supplies, leaving British business leaders agitated about the impact on their staffing and access to products and services. An impact further exacerbated by the existing problems caused by Brexit and a shortage of lorry drivers.

Pictures of empty supermarket shelves quickly spread on social media and news websites, forcing the government to accept shortages were becoming an issue. Kwasi Kwarteng, Secretary of State for Business, Energy and Industrial Strategy confirming the government were “very concerned about some developments”.

By the following Thursday, Boris Johnson backed an emergency plan to avoid further disruption to UK supplies. Measures included rolling out a testing regime to as many as 500 food-related workplaces so that contacts who would otherwise be self-isolating can instead take daily tests. Jeremy Hunt, former health secretary, said the self-isolation rule should be scrapped immediately for people who had been double jabbed, warning: “Otherwise we risk losing social consent.”

Figures from the health department show the number of people using the NHS Test and Trace app to register at pubs, shops and other venues is continuing to fall. The fall suggests more people may have deactivated or deleted the app to avoid being put into isolation if they came close to someone who later tested positive for the virus.

With children returning to schools in September and fears of a third wave of the virus circulating we’ll likely see more strategies put in place to balance economic impact and public health. Let's hope that the holiday you might be considering will still be on the cards!

Deadline set for early pension access

As the government sets out plans to raise the minimum access age to pensions from 55 to 57, Savers looking for early access to their pension pot may need to act by 2023 to maintain early access.

The current rules to the defined contribution pension pots allow savers to take their pension savings as they wish from age 55. However, the government has now confirmed this “normal minimum pension age” (NMPA) will raise to 57 by April 2028, at which point the state pension will also rise from 66 to 67 in line with life expectancy increases.

Those predicted to be most impacted by the change are those born after April 6, 1973, who are aged 48 and younger. They will have to wait an extra two years to take either a lump sum or income from their pension. To mitigate this, the government is allowing savers who take action by 2023 to keep to the current NMPA rules provided they transfer pots to a scheme where the 55 years pension age is built into the scheme rules.

Taxing times for the young saver

We’re real advocates of teaching strong financial habits at a young age, after all, that’s why we wrote the book SMART Money which you can download for free here. Good financial habits established early on in a career will set plans in motion for a strong foundation for the future. As such, it’s a concern for many to hear rumours that the government may be looking to cut higher rate tax relief on pensions in order to pay off some of the huge Covid-19 related debts accumulated.

Tax relief is currently paid on pension contributions at the highest rate of income tax a person pays. This translates to basic rate taxpayers getting 20 per cent pension tax relief, higher rate taxpayers able to claim 40 per cent and additional rate taxpayers getting 45 per cent. If younger higher rate taxpayers were to lose out on the 40% they would lose out on both the higher rate contributions and any investment growth that might come with it.

Whilst the government is yet to confirm or deny the rumours of the above, any changes to the levels of relief are likely to disincentivise younger generations from building their pension pots now for the future. It’s here where we as advisers have a place to help people understand their options and separate fact from fiction and fear, so if you know someone that needs help or guidance, please don’t hesitate to ask.

Charlie’s Mini Blog

In my new book The Life Legacy Gift, I talk about the impact of passing on our stories and life’s learning to the next generation. When you have a life changing experience, tick off a major bucket list item or hit an important goal, you usually come away with some significant life lessons. Aspects that change the way you think for the rest of your life that, without care, can be lost when you are gone.

Wouldn’t it be a shame if your loved ones had to make the same mistakes that you’ve made in order to progress in their life? Imagine if Edison hadn’t shared his life lessons and we all had to invent 1000 light bulbs before we could ditch the candles! That’s why creating the best legacy possible actually takes some effort.

Take my recent attempt to raise money for the charity, CALM. Having had glorious sunshine in the days before and after, Tallinn treated me to torrential rain and 40mph winds for the duration my Ironman which made for a tough day, and an extra 1/2 mile run at the end of the marathon caught me by surprise, so there were many lessons learnt.

I wanted to complete the Ironman in under 11 hours, so I was chuffed with 10.52 given the conditions. For those that are interested, my splits were 1.13 for a choppy and murky 2.4-mile lake swim, 5.24 for a wet and windy 112-mile bike (avg 20.5 mph), and 4.02 for a 26.74-mile run. A huge thank you to those that have sponsored me already. If you haven't, you can still help me raise money for suicide prevention here.

Importantly, I have documented what went well, and what didn’t so that not only can I learn from my mistakes, but others can too. If you ever want to do an Ironman, feel free to ask! If you’d like a free copy of The Life Legacy Gift, either for you or for perhaps your parents, email [email protected] as we will be giving away a limited number of paperback copies. You never know, you might get lucky and be able to create an even better legacy!