Even after the strange year we’ve had, many of us will be making New Year’s resolutions to exercise more, eat more healthily or tackle those jobs around the house that have been bugging us since the beginning of lockdown.
Adding some financial pledges to your list of undertakings for 2021 could leave you better off at the end of 2021 than you were at the start. As an added bonus, these resolutions might be easier to keep, relying on a one-day blitz or setting up some automated tasks, rather than a whole year of feeling guilty about not going for a run.
Here are five that could really make a difference.
1. Get on top of your retirement plans
It doesn’t matter whether you are five years away from retirement or 45, knowing where you are going will make the whole journey much easier. Set aside one day in January to gather a clear picture of your retirement savings strategy, and get your papers in order in advance.
You’ll need a state pension forecast (available here https://www.gov.uk/check-state-pension) as well as knowledge of workplace pensions new and old. You can get pension statements for old workplace pensions by writing to trustees, and if you fear they are really lost, the Pension Tracing Service (https://www.gov.uk/find-pension-contact-details) should be able to help out.
Once you know what you’ve got now, you are close to being able to work out what you might need for the future, and whether you might want to consolidate existing funds or top them up. If in doubt, a financial adviser could help with cashflow modelling and advice around pension transfers.
2. Max out all of your allowances
Paying for the pandemic will be top of Chancellor Rishi Sunak’s list in the coming year, with rumours abounding about rises to Capital Gains Tax, axing of pension tax relief for higher earners and inheritance tax tinkering.
Second-guessing the Chancellor is tricky, so the best thing to do is ensure you use as much of your pension and ISA allowances as you can before April. You may want to consider shifting investments into an ISA if possible, even if you need to sell them and buy again, to take advantage of this year’s Capital Gains Tax allowance, as well as putting as much as possible into pensions.
3. Make a will, or change a will
If the last year has taught us anything, it is that life is uncertain. 2020 saw an explosion in the number of people making a will to help ensure their wishes are met when they die, but the Law Society has noted that the ‘overwhelming majority’ of people still do not have their affairs in order1.
As well as making a will for the first time, it is also worth reviewing your existing will after any life change, such as the birth of a child or grandchild or a divorce in the family, since this could drastically change the way you want your estate to be distributed.
4. Scrutinise your savings rates
If you’ve got savings that you haven’t touched for a long time, the chances are they are losing value, rather than gaining it, unless you have been regularly switching your bank accounts.
New figures from financial data group Moneyfacts2 show that interest rates are at record lows, with the average one-year fixed rate account paying less than half of what it did the same time last year.
With inflation running at 0.7 per cent a year3, the value of the money in savings accounts below this is being eroded over time.
As well as switching cash savings into better-paying accounts, now may be the time to consider whether investment might be a better bet for money you aren’t planning to touch for some time. The Barclays Equity Gilt study - the leading study on how investments and other assets perform over time- shows that over longer time periods, investments nearly always outperform cash. A financial adviser should be able to talk to you about your own risk perception and whether investments are right for you, and set up a diversified portfolio if so.
5. Have difficult money conversations
Talking about money is one of the hardest things for most of us to do, but with families struggling this year and facing different circumstances than usual, sitting down (on Zoom or in person) with extended family members from other generations to talk about goals, expectations around inheritance and retirement plans can head off difficult times in the future.
In conjunction with a will, ensuring these conversations have been had, and that paperwork such as a lasting power of attorney have been sorted out, can smooth family life for the next twelve months. It might be hard, but after all, not all New Year’s resolutions are meant to be easy. If you fear having these conversations, involving a professional such as a family lawyer or financial adviser can make the process easier.
1. https://www.lawgazette.co.uk/news/will-making-on-the-rise-in-wake-of-coronavirus-/5106639.article