AJ Bell press comment - 28 December 2022 As we approach the turn of the year, Laura has looked at five New Year's resolutions that everyone can consider making with their money to get on top of their personal finances, including: Laura Suter, head of personal finance at AJ Bell, comments: "January is a month where most people stay in, shun socialising and have a bit of spare time on their hands, so it's the ideal time to tackle some of that boring life admin that you've been putting off. The bonus is that you could make a decent amount of money from tackling some of these tasks, which is often much-needed at the start of the year." Sort old pensions "One of the first tasks is to track down any old pensions that you have lost track of. According to the DWP, people switch jobs on average eleven times during their careers - which means a lot of different pensions to keep track of.
It's estimated there could be 1.6 million 'lost' pension pots in the UK, with each one being worth an average of £13,000 per pot. So, it's worth digging out your old paperwork. "We've now had 10 years of auto-enrolment in the UK.
This works on an opt-out basis, meaning that unless you deliberately decide not to save into a pension your employer must put one in place, subject to a few conditions. Thanks to this landmark policy, private sector workers are now paying over £60billion a year into their pensions, a 50% increase on a decade ago. "Although it has dramatically increased the amount we save for retirement, it also means more pensions to keep track of.
Most people will have a new pension set up for them with every new employer. Consolidating them together could make them much more manageable, as well as giving you a better financial return. "Your first port of call is finding any old paperwork that will tell you where your pension is and how to log-on to see its value and transfer it.
If you can't find any documents, you can use the government's pension tracking service to find where it is now. Tracking down these old pots makes sense for a number of reasons. Firstly, knowing how much you have saved in total will help you work out how much you might need to save in the future to enjoy the retirement you want.
"Secondly, once you have located any old defined contribution funds you can consider combining them with your current workplace pension or moving them to a Sipp you can manage online. This will make your pension easier to monitor and manage, but also means you could benefit from lower charges, greater investment choice and more flexibility when you decide to access your fund. Just double check before you transfer any old pensions whether they have any guarantees attached, as these could be lost if you switch to a new provider." Start saving for your children "The last thing you're likely to think of in the early sleep-deprived days of having a baby is opening a savings account for them, but if you're fortunate enough to have some spare cash each month that you can put away, it's a good idea to get into the savings habit early for your child.
Saving small amounts when they're little can really add up, and help to pay for things like university, buying a car or a house deposit in the future. "If you managed to save just £100 a year every year since a child was born you could have £3,000 put away when they turn 18, assuming it's invested and gets 5% a year growth after fees. Putting away £50 a month would equal more than £18,000 by the time they turn 18.
"Saving on behalf of a child is a great way to give them a financial head-start in life. Lots of people default to saving in a cash account for their children, with around £7 in every £10 paid into a Junior ISA going in cash savings, rather than a stocks and shares JISA, according to HMRC figures. But because money earmarked for a child when they turn 18 has such a long time to grow, it's worth considering investing instead.
Children are ideally placed to ride out the ups and downs of the stock market in search of better long-term returns. Their stocks and shares JISA account can be managed by an adult, alongside their own ISA portfolio. "It is also worth noting that despite rising interest rates, the best cash JISA accounts still only pay around 3.5%.
That's well below the rate of inflation and much worse than the best fixed rates available to adults, with some accounts paying close to 5% on a two-year fixed term deposit, according to Moneyfacts. All things being equal, JISAs should really offer the best rates of interest, because the money will be locked away until the child turns 18. Sadly, providers know that parents tend not to switch providers so there is less competition for the cash.
Don't fall into the pitfall of picking a cash JISA at birth and leaving it to idle at a sub-par rate of interest. "You can now save up to £9,000 a year into a Junior ISA for a child, which is a pipe dream for many families, but it means that you can add lump sums to any regular savings, on birthdays or Christmas for example. In a Junior ISA returns are free from income and capital gains tax, and it can be rolled over into an adult ISA when they turn 18 and save the child from any additional tax on their investments when they grow up." Write a will "No one wants to think about death, which is why so many people put off writing a will.
But lots of people wrongly assume the assets will go to different people when they die, which is why it's crucial to ensure your affairs are in order. "With families being more complicated now and people co-habiting but not being married or having children from different relationships it's more important than ever to ensure that your money and assets are going to the right place when you die. "For example, if you're not married then your partner isn't automatically entitled to any of your estate when you die, regardless of how long you've been together.
It's particularly key to bear this in mind if you own the home that your partner, and potentially step-children, live in. "It's a relatively painless process to get a will: there are some kits that let you do it yourself or you can go to a professional who will guide you through the process. If you go down the DIY route you need to make sure the will is legally binding, otherwise your efforts will be in vain." Make the most of your cash "The Bank of England has just announced yet another interest rate hike, taking the UK base rate to another 14-year high of 3.5%.
Those in their 20s and early 30s will never have seen rates this high in their adult lives. Rising rates are good news for savers, although anyone with money in savings can't just sit back and expect that extra interest will be added to their account, they have to go hunting for it. "Lots of people have savings languishing in current accounts or old savings accounts earning almost nothing.
If that's you then the new year could be the time to take advantage of rising rates. If you put £10,000 into five-year fixed-term deposit account at the best available at the time of writing* then you'd have £12,702 at the end of the term if you save all the annual interest. "Some people will have been waiting to see what happened to interest rates in 2022, perhaps leaving their money in an easy access account or current account.
If that's the case, then it is probably time to start looking for a fixed-rate if you can lock the money away for longer. We're likely to reach a peak in base rates sometime next year, and many banks will already have factored in future rate hikes so cash savings rates may not improve that much further unless there's a surprise and base rate ends up going even higher than expected. "The bad news for savers is that inflation is sky high and although it may now have peaked, no savings account is paying enough to keep pace with inflation.
This means that any money in cash is losing value in real terms, which means the amount you can buy with it year-on-year is diminishing. Nonetheless, savers desperate for a higher return need to be wary of deals promising guaranteed cash returns at very high rates, as these are likely to be scams. And if you don't actually need access to the cash in the immediate future, then consider whether you can afford to invest some of it for the potential of a higher return." *4.9% according to Moneyfacts as at 16/12/22.
Beat the tax hikes by using your ISA and pension "We're now onto our fourth Chancellor of the year, after Jeremy Hunt replaced Kwasi Kwarteng, who took over from Nadhim Zahawi, who took the job after Rishi Sunak resigned from Number 11 in the summer. "Turnover in the Treasury hot seat came with fiscal policy U-turns aplenty, and investors could be forgiven for losing track of quite where the government landed on how much tax we'll all pay. Ultimately, what people need to know is that the system is set to become less generous, with the taxman taking a bigger bite out of our earnings and investment income.
That makes it doubly important that we all take advantage of legitimate tax shelters like ISAs and pensions. "Investors are concerned about the tax rises coming, with 64% of AJ Bell customers* expecting to pay more tax next year because of recent government changes. "Anyone can put up to £20,000 a year into an ISA and most people have a £40,000 annual limit for their pension.
On top of this, anyone with children can open a Junior ISA and put up to £9,000 a year into it. Make the most of these allowances to shield money from the taxman and look into 'Bed and ISA' transactions to make use of your Capital Gains Tax allowance, which will be slashed to just £6,000 in April and £3,000 in 2024. "Likewise, the tax-free dividend allowance will be cut in half in April next year, and then again in 2024.
It will mean investors can take just £500 in dividend income before paying tax from April 2024, so start planning now if this is going to land you with a big tax bill. If you choose to put dividend-paying investments into an ISA then it is likely to involve selling and buying the shares or funds, and any gains will be taxable. Again, this 'Bed and ISA' transaction is best carried out before the end of the tax year to take advantage of the current £12,300 CGT allowance." *Survey of 2,650 AJ Bell platform customers carried out in December 2022.
Laura Suter Head of Personal Finance Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor.
She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.