Prime Minister Theresa May has spoken, calling for a snap election to be held on the 8th of June. The outcome, May hopes, will help to strengthen future negotiations on Britain’s exit from the EU.
That’s May’s goal; but how is the election likely to affect you, and more specifically, your finances? You might be feeling a little underprepared, but don’t panic. Lets take a look at some of the ways the election could impact your financial situation:
Pension triple lock
The current triple lock protects the State Pension by guaranteeing an annual rise that matches either average earnings or 2.5% – whichever is higher. It’s popular but costly, and that’s why its future is uncertain.
While Labour and the Liberal Democrats have pledged to keep the triple lock throughout the next parliament, the Tory manifesto proposes ditching the system. Whether the triple lock remains or is abolished, relying on the State Pension alone may not be enough. The full State Pension currently stands at £159.55 per week, which many people will agree is too little to maintain a good standard of living in retirement. And here’s the thing: an Aon Hewitt study* from last year revealed that just 16% of savers are putting back enough cash to maintain their current standard of living in retirement.
As of yet, the Treasury has refused to rule out cuts to pension tax relief. However, if May’s party secures the majority vote, a tax relief reform is likely to take place.
Higher State Pension age
The government has postponed its response to the Cridland report, which calls for the State Pension age to rise to 68 from the current 67 by 2039. This is seven years earlier than the date suggested by the government, with ministers predicted to release their future State Pension age increase timetable after the general election.
A spokesperson working for the Department for Work and Pensions commented:
“This is a crucial issue for the long-term management of both the public finances and the savings of individuals. Therefore it is important that policy is made by a government with the power to act on that policy, which will now be the government formed after the general election.”
Possible National Insurance rises
In his Budget this year, the chancellor announced plans to increase National Insurance contributions (NICs) for the self-employed by 2%. Even though he has backtracked on his plans following public outcry, May has refused to commit to David Cameron’s ‘tax lock’ guarantee, suggesting that her party could raise National Insurance in the future.
If you’re self-employed, you might need to adjust your budgeting slightly to account for the possible rise if the Tories win. By identifying where you can curb spending, for instance, you will be able to offset the negative impact of the tax rise on your income.
At present, there is nothing to suggest any notable, long-term changes to policy regarding ISAs from any of the major parties.
If you have investments, it’s natural to expect some stock market volatility during the election period. The worst thing you can do is panic, if you ride out the volatility, you could be rewarded in the long-term. Here are some tips:
- Keep your long-term goals in mind, and don’t get distracted by short-term noise
- Make sure your investment is diversified
- Continue to take advantage of investment perks, such as ISA and pension allowances
- Drip-feed your investments; regularly investing helps to smooth out the highs and lows of the market.
Social care in later life
The Tory manifesto revealed that pensioners will stop paying for their own care once their savings and assets fall below £100,000. This pledge has proved controversial, with May now saying that the proposed changes to social care funding will include an “absolute limit” on the money people will be required to pay. While the Tory manifesto failed to mention a cap, May stressed that her plans offer a viable long-term solution.
With care costs on the rise, it’s never too early to start putting money aside to help cover your care in the future. While paying into pensions will provide you with regular income in later life, you might want to consider investing in a Stocks & Shares ISA. A Stocks and Shares ISA is a longer term investment (5 years+) which provides a tax efficient way for you to invest in the stock market, providing the potential for greater returns over the longer term. Of course, investing isn’t without its risks – your investment could fall, meaning you might not get back the money you put in in the first place.
Investing could allow you to build a decent nest egg for your future, helping to fund your retirement or help pay towards care if you were to need it.
Now the manifestos are being published, we are given more insight into the pledges of each party. Yet, ultimately, everything hinges on the outcome of 8th of June.
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