Looking after our money has become even more important in recent times as soaring inflation, record high interest rates and the rising cost of mortgages has threatened to chip away at our savings.
Protecting your life savings will be something that financially savvy Brits will be thinking about even more with a new government coming to power.
To help you look after your finances, here are a few steps you can take to reduce the risk of politics hurting your pocket, according to experts.
- Don’t panic
It’s easy to see speculation around each policy and fear the worst, head of personal finance at Hargreaves Lansdown, Sarah Coles, told i.
But voters “shouldn’t allow it to drive behaviour that we wouldn’t otherwise consider, especially when it could end up being detrimental to your finances”, she said.
“Anything from making knee-jerk investment decisions to piling money you can’t spare into long-term savings and investments, could end up doing more harm than good. The tax tail should never wag the investment dog, and we shouldn’t let it chase the policy squirrel either.”
It’s also important to take a long-term view of the situation, she said, as there is not expected to be any massive movements inspired by UK politics in the immediate future. Even if there are short-term movements immediately after the election, as long as you have a diverse portfolio and a long-term view, there’s no need to make any sudden changes.
2. Look at the best savings deals
Savers are encouraged to keep an eye on movements in the market and use comparison sites to find the best deals. As savings rates often follow what is happening to the base rate, people are encouraged to lock in to longer-term deals as interest rates are expected to fall later this year.
James Daley, managing director at Fairer Finance, said: “For savers looking to protect their long-term prosperity, it’s worth bearing in mind that the recent heady days of interest rates over 5 per cent are soon to come to an end. Inflation is falling rapidly, and soon, the attention will shift to fighting deflation.”
Currently, the best one-year fixed saving rate is with SmartSave at 5.24 per cent while the best two-year is with Cynergy Bank at 5.06 per cent.
- Consider this year’s ISA plans
Experts are suggesting it is worth considering ISAs and what will happen with them under a new government.
Ms Coles said: “Although the parties say the manifestos are fully costed, unless there’s economic growth, the second half of the coming parliament could result in some very tough choices on spending, or revisiting some tax pledges. It means that if you haven’t used your ISA allowance, and you plan to do so at some stage, it may make sense to crack on while you know exactly where you stand.”
She said that for some people, a cash ISA will be a sensible plan because they’re worried about tax on their savings. This has the added advantage that you can strike at a time when cash ISA rates are particularly competitive.
For others, a stocks and shares ISA provides certainty that your investments are sheltered from any tax changes a future government may bring in. In many cases, a combination of the two will be the best solution.
- Don’t forget existing investments
When you’re considering your ISA options this year, Ms Coles warned people not to forget about their existing investments outside tax wrappers.
She said: “You can use share exchange, or Bed and ISA, to move up to £20,000 into a tax-efficient environment, which will help protect your existing investments whatever happens after the election.”
Myron Jobson, senior personal finance analyst at interactive investor, added: “Keeping your investment plan steady and focusing on the long haul is often the wisest approach. Making the most of tax efficient ISA and self invested personal pension (SIPP) wrappers, which shields any interest, dividends, or capital gains earned from income and capital gains tax, remains a good strategy. This means your investments can grow without being eroded by taxes.”
- Plan this year’s pension contributions
The Conservatives have pledged not to make changes to pension tax relief or tax-free cash if they were to win on Thursday, and while Labour didn’t make similar commitments in the manifesto, it has since said tax free cash is a permanent fixture of the tax system.
It has also said it won’t be reversing the axing of the lifetime allowance for pensions, and this “makes it easier for savers to plan with more certainty”, according to Ms Coles.
Will Stevens, head of financial planning at Killik and Co, said: “Although we are not expecting any radical changes immediately after 5 July related to pension planning, we have seen changes in the pension regime already this year with the lump sum and death benefit allowance being introduced. It is important to review the death benefits on your pension as a result of these changes to ensure any funds are paid out as tax-efficiently as possible.”
The lump sum and death benefit allowance applies to the payments that use up the lump sum allowance as well as the tax-free element of serious ill health lump sums and certain non-taxable lump sum death benefits.
For most people the lump sum and death benefit allowance is £1,073,100. Your lump sum and death benefit allowance could be different if you have lifetime allowance protection.