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COVID-19 has affected everyone’s lives in 2020 in varying ways. Some have been more badly affected than others. Here at Cedar House, our financial planners have witnessed some of the hardship that the pandemic has inflicted on clients who have lost work, quality time with loved ones and peace of mind over their future.
Pensions and investments have also been impacted as well. With so much change and huge global disruption, it is important for people to take a step back to survey their surroundings. it is once we have a clear understanding of where we are that we can make better decisions about how to move forwards. In this article, our team here at Cedar House offer this overview of how the pandemic has affected financial planning in 2020.
We hope you find this content helpful, and invite you to contact our team here at Cedar House for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
COVID-19 and savings
One crucial pillar of financial planning is for each household to strive towards building an easy access emergency fund containing 3-6 months’ of living expenses. This can be invaluable in the event that you suddenly lose work or need to cover a large cost (e.g. a family emergency). Yet the pandemic has, understandably, put many households’ emergency funds under strain as jobs have been shed in different sectors (e.g. hospitality and tourism).
As the country goes into the fourth quarter (Q4) of 2020 many government support programmes such as the Job Retention Scheme are winding down or being replaced. Therefore, it is wise to ensure that your emergency fund is as strong as it can be for the months ahead. Think carefully before simply spending any government support money on luxury items – especially as we near the expensive Christmas period.
Another feature of the pandemic has been the decision by the Bank of England (BoE) to reduce interest rates to 0.10%. This has been welcomed by many homeowners looking for a cheaper mortgage, yet it has also served to further erode the returns which savers can expect from their regular savings accounts. As such, it may be appropriate to explore other options with your financial adviser such as NS&I Premium Bonds.
COVID-19 and investments
All investors will have noticed at least some of the detrimental effects that the spreading virus and subsequent lockdowns have had upon portfolios in 2020. The picture here is still highly complex at the time of writing – and changes frequently. Income investors, for instance, have seen their income fall as companies across the world seek to build their cash reserves by not paying out dividends.
Bonds in the U.S. were under considerable pressure and “almost broke” before the Federal Reserve stepped in. Equities have also taken a hit across the developed world, although these have been rising since the height of the lockdown in March-April 2020. All of this points to the importance of reviewing your portfolio with a financial adviser to ensure that it is appropriately diversified and committed to strong investments with sound fundamentals.
COVID-19 and tax
The pandemic has, of course, put a huge strain on UK government tax revenues. Companies have seen lower profits as consumer spending declined during the lockdown, leading to lower tax collection via corporation tax. Revenues from income tax and national insurance have also been hit as unemployment has risen – leading to fewer jobs that can be taxed. At the same time government spending in 2020 has skyrocketed as huge borrowing has been required to pay for the financial support measures introduced since March. All of this adds up to a simple question: how will the government pay for all of this coronavirus spending?
It’s impossible to predict what will happen. The much-anticipated Autumn budget planned by the Chancellor has now been shelved, for instance. Yet there are still strong reasons to believe that the government will likely consider rises on certain UK taxes in coming months in an attempt to “balance the books”. Capital gains tax (CGT), in particular, seems to be under the microscope as the Chancellor has ordered a review into the tax by the Office of Tax Simplification (OTS). In the past, CGT mirrored income tax brackets (i.e. under Thatcher’s government) and there is no additional rate band for the tax at the time of writing. Consider seeking independent financial advice if you think you may be affected by possible tax changes as we approach 2021.
Conclusion & invitation
The impact of COVID-19 upon the UK economy and household finances is still unfolding. Yet a picture is starting to emerge of what has happened across different areas of financial planning so far in 2020. We hope this content has helped uncover some of this landscape to you a bit more clearly, yet the best view is achieved with the help of an experienced professional.
Interested in discussing your investments or wider financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk