Tomorrow marks not just the start of a new year, but also a brand new decade. On the eve of 2020 we have 12 shiny new months ahead of us, a clean slate, and, no doubt, a raft of new year resolutions to stick to. But the new year is also the perfect time to step back a little, take stock and position your finances to make the most of the year to come.
Of course, as now almost seems ‘traditional’, the new year comes with a sting in its tail. Commuters will soon be back to reality with a bump after the festive break as they find that the average rail ticket has risen by 2.7% since the start of the year.
There is some good news too though when it comes to our new year finances.
From April people will be able to pass on more of their wealth when they die. Inheritance tax breaks have been rising since April 2017 for people who own a home and will hit £175,000 this year. This means that including the standard nil rate band, a couple will be able to leave property worth £1 million to their children or grandchildren entirely inheritance tax-free.
However, those with very large estates won’t get the full amount, as anyone with an estate valued at more than £2 million will start to see their allowance whittled away - by £1 for every £2 over the limit.
Our day-to-day income should also get a boost later this year, as part of the Government’s manifesto promise to change the threshold for national insurance. Under their plans, you should pay no national insurance contributions on the first £9,500 of your earnings - up from £8,632 at the moment - which would save all workers earning more than £12,600 around £100 a year.
People paying back student loans get a minor tax break in April too. Recent graduates will be able to earn £26,575 a year before payments kick in. That goes up from £25,725 this year and should save them £76.50 in payments a year. While people who graduated between 1998 and 2011 will see their threshold rise too - from £18,935 a year to £19,390.
And there could be more good news to come. The Government has guaranteed that it won’t change the rules around pension rises - which means today’s pensioners should see a 3.9% increase; adding £5.05 a week to the ‘old’ basic state pension and £6.60 a week to the ‘new’ state pension. We should find out for sure at the next Budget, which is probably most likely to be in February.
While the past few years have been dominated by uncertainty, we are not out of the woods completely yet. There are still quite a few ‘known unknowns’ as we go into 2020, so it pays to be prepared. Here’s how:
1. Prioritise your savings
Day-to-day price rises and shock expenses are always a shock to the system, but what’s important is not to let them knock your savings and investments off course.
Make sure you use your annual ISA allowance. We can each save up to £20,000 in an ISA in the current tax year. As well as enabling you to build a substantial pot of money, which will grow over time, you also shelter all the gains from the tax man. The current tax year ends on 5 April, so take advantage of your ISA allowance before then.
The easiest way to work savings and investments into your household finances is to set up a small but regular monthly sum into your ISA. You can save as little as £50 a month and choose where in the world you invest and what you invest in.
2. Keep an eye on the future
And don’t neglect your even-longer term savings. There is a slim, but distinct possibility that the lower-for-longer interest rate environment may be set to get even more challenging for savers in 2020.
While the Bank of England has maintained the base rate at 0.75% and the UK’s central bankers are currently forecasting a recovery in the early part of next year, as some of the uncertainty over Brexit is due to be resolved on 31 January, further rate cuts cannot be ruled out.
In fact, if UK consumer spending fails to pick up and if global growth continues to slow, the Bank of England’s Monetary Policy Committee (who already have two out of their nine members in favour of a rate cut) may have little option but to cut rates again.
With inflation still low, if the festive retail sales figures are weak and the next batch of PMI data (particularly services which served to be a key supporter of the economy earlier in 2019) remains depressed, then the case for a rate cut may start to build; especially if that forthcoming data continues to disappoint. In that case, moving your savings out of cash will be essential for long-term growth.
3. Make looking after No. 1 your priority
Having adequate pensions savings is essential as we’re living longer in retirement. And that’s especially the case for women who tend to live longer, on average, and yet so often let regular pension savings slide when they take a break to have a baby or find the onus is on them to care for an elderly relative.
Putting your hard-earned money to work and keeping it working hard is essential for your retirement success. If you already save the maximum you want to through your employer’s workplace pension scheme, or you’re self-employed, then in addition, you could consider saving into a SIPP.
With a Fidelity SIPP you can invest from as little as £80 into your pension every month. This will then be automatically topped up to £100 because of the tax relief that pension contributions get.
And if you are self-employed and have a limited company, consider making contributions from your limited company. These will then be considered employer contributions and these can usually be offset as a business expense which will reduce your potential corporation tax liability. However, unlike personal contributions, employer contributions do not attract tax relief.
4. Keep it simple
Keeping track of a number of different ISAs, savings pots and pensions can make keeping track of how your investments are doing and whether or not you’re on track with your goals, difficult. It might be better to consolidate your savings and investments, where it’s appropriate.
For instance, if you have a number of small pension pots from a number of previous employers it may be an idea to consolidate these into a SIPP. That way you can keep track of them more easily, you may also find that consolidating helps cut costs, plus you gain the ability to choose what your SIPP invests in.
5. Stay informed
And lastly, make sure you stay up to speed in 2020. If there is one thing the past few years have shown is, it’s that the unexpected can happen and knowing what to do - and what not to do - when it does, is very important.
You can start by putting your questions directly to our investment director Tom Stevenson in his first live webcast of the year. Join us online at midday on Wednesday 8 January to hear Tom’s latest Outlook for the year and for the opportunity to put your investment questions directly to him.
To get a head start on what to keep an eye out for, take a look at our latest MoneyTalk episode. We have called it 2020 Foresight and in it we asked three investment experts to take part in a round table discussion and give us their views on what investors can expect in the year ahead.
Important information: The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. The Select 50 is not advice or a recommendation to buy funds. Equally, if a fund you own is not on the Select 50, we’re not recommending you sell it. You must ensure that any fund you choose to invest in is suitable for your own personal circumstances. Eligibility to invest into an ISA or a SIPP and the value of tax savings depends on personal circumstances and all tax rules may change. Withdrawals from a pension product will not normally be possible until you reach age 55. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.