As we approach the end of the year, you’re no doubt looking ahead to 2024 already. You might have already thought about resolutions for the new year, or goals for what you want to achieve.
While setting resolutions and targets is a worthwhile activity, it’s also a good opportunity to reflect on the 12 months that have just gone by.
2023 was another busy year, with multiple changes that could affect your wealth. So, the end of the year is a chance to take a look back and draw wisdom from what’s happened, seeing what you can learn from this year’s events.
Read on to learn five financial lessons from this year that you can take with you into 2024.
1. Changes to pension legislation could make it more attractive to stay in work for longer
This year, we’ve seen key changes to pension legislation that could make saving into your retirement pots more attractive, and encourage you to extend your career.
Firstly, in the Spring Budget in March, chancellor Jeremy Hunt announced that the government would be scrapping the Lifetime Allowance (LTA), the lifetime limit for tax-efficient pension saving.
Standing at £1,073,100, exceeding this limit meant that you could face a tax bill of up to 55% when you came to withdraw your pension funds over the threshold. Moving forward, there will be no lifetime limit for pension saving.
There was previously doubt over whether the LTA abolition would come into effect, as there had been opposition to the move.
But, the chancellor confirmed in his November Autumn Statement that the government would be legislating for the official removal of the LTA in the Autumn Finance Bill 2023. This is set to come into effect from 6 April 2024.
Meanwhile, the chancellor also increased the pension Annual Allowance – the amount you can tax-efficiently save into your pension each tax year – from £40,000 to £60,000 in 2023/24. The tapered Annual Allowance and Money Purchase Annual Allowance were both also increased, rising from £4,000 to £10,000 a year.
In combination, these changes could make pension saving more attractive as we move into 2024. You might be incentivised to consider working longer and continue building your retirement funds, especially if you were planning to retire in the coming year.
2. The State Pension continues to be a fundamental bedrock of your retirement plan
Alongside key changes for workplace and private pensions, the State Pension also received a boost this year that could mean it remains to play a significant role in your retirement plan.
In the Autumn Statement, the chancellor confirmed that the government would be committing to the “triple lock”, increasing the State Pension by the highest of:
- Inflation in the year to September, based on the Consumer Prices Index (CPI)
- Average year-on-year earnings growth, measured from May to July
- A flat 2.5% increase.
The government had previously not committed to the triple lock in 2021, after earnings growth was artificially inflated by people returning to work in the wake of Covid-19 lockdowns. Instead, the government used the second-highest measure, which was inflation.
This year, the State Pension will rise by the highest of the three, which was average wage growth. Totalling 8.5% from May and July 2022 to 2023, this means the full weekly amount you can receive from the State Pension will rise from £203.85 (£11,427 a year) to £221.20 (£11,500 a year) from April 2024.
As a result, the State Pension could continue to be a key part of your retirement plan.
3. Freezes and reductions to key tax thresholds could see your bill rise in the new year
Although there was good news surrounding pensions this year, it’s worth keeping in mind that your tax bill could rise in 2024.
Various tax allowances and exemptions have been frozen or reduced for 2024. This includes the:
- Income Tax Personal Allowance. Standing at £12,570, this is the threshold for what you can generate in income before tax is due. It will be frozen here until 2028.
- Capital Gains Tax (CGT) Annual Exempt Amount. This is a threshold up to which you can generate gains before tax is payable. It stands at £6,000 in 2023/24, but will fall to £3,000 in April 2024. This could affect you if you sell or “dispose of” assets, such as non-ISA shares.
- Dividend Allowance. Before Dividend Tax is due, you can generate tax-free dividends up to the Dividend Allowance. This is £1,000 in 2023/24, falling to £500 in April 2024. You may face a tax bill sooner than before if you receive dividends as part of a non-ISA investment portfolio, or if you are a business owner taking dividends from your company.
As a result of these changes, your tax bill could increase in April 2024. It may be worth looking at ways to make your wealth more tax-efficient as a result.
4. It’s crucial to carefully manage your wealth during a period of rising inflation
Inflation hasn’t been far from the headlines in the past two years, and has been a significant talking point in 2023.
As data from the Office for National Statistics shows, inflation was in double figures for the first three months of the year, and only fell below 5% for the first time in the 12 months to October 2023 – the lowest it has been since November 2021.
Inflation measures the rising cost of living from one year to the next, reducing the value of your money in real terms. For example, an inflation rate of 5% means that goods and services costing £1,000 one year would cost £1,050 the next.
As a result, it’s likely you’ve noticed a squeeze on your money this year, as it may not stretch as far as it did last year.
It’s crucial to note that inflation is not yet falling, either – a decline in rates of inflation simply means price rises are happening slower than they were, not falling.
The lesson to learn from this is that it’s vital to organise your wealth with inflation in mind. You need to make sure that you save and invest in such a way to ensure that your money keeps pace with the rising cost of living over time.
This is especially important in retirement. Your income tends to fall and your savings are somewhat finite once you stop working, so ensuring that you have planned for future inflation is key.
5. Rising interest rates aren’t always what they seem
As inflation rises, interest rates often follow suit. That’s because the Bank of England (BoE) raises its base rate to increase the cost of borrowing on mortgages and loans, and make saving more attractive with banks and other savings providers. The aim here is to reduce consumer spending and, in turn, slow inflation.
At Cordiner Wealth, we’ve talked a lot about interest rates this year. You might have read our article explaining how your wealth might be affected by rising interest rates, looking at why investing your wealth may still be preferable to just saving it.
Crucially, you may also have read about why these increases may not be all that they seem. In that article, we looked at how it’s important to consider rising interest rates in a wider context, and that they could indeed fall again in the near future.
For 2024, the key takeaway is to keep these aspects in mind, especially if you’re considering switching your wealth to a different savings account for a higher rate of interest.
No one knows exactly what will happen with interest rates next year. In the meantime, always think about whether any changes you’re considering suit your wider goals, and speak to a professional if you have any questions about the decisions you’re making.
Get in touch
If you’d like support managing your wealth in the new year, we’re here to help at Cordiner Wealth.
Email firstname.lastname@example.org or call 0113 262 1242 to speak to us today.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
The Financial Conduct Authority does not regulate tax planning.