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Investments & Pensions

Inflation & Tax

These are the two most damaging elements when it comes to saving for your future.

Whilst “risk” is often associated with Investments and Pensions, it is rarely considered with Bank and Building Society savings accounts.

But what about Inflation?

Think about how much a Mars Bar cost in 1990 – about 26 pence?

How much does a Mars Bar cost today? 90 pence….and they are smaller!

 

 

If you had 26 pence in your savings account in 1990, and it benefited from
2% (net) interest per year (rates we can only dream about today!),
you would now have 47 pence.

 

This illustrates the “risk” of inflation and keeping all of your savings in low interest baring accounts.

And what about Tax?

 

If we take the same 26 pence in 1990 but allow it to benefit from a tax free interest rate, this would increase the rate to 2.5% for a basic rate tax payer and 3.3% for a higher rate tax payer. This would result in a basic rate tax payer having 55 pence today and a higher rate tax payer having 69 pence….better, but no longer enough for a whole Mars Bar!


 

This is where Investments and Pensions come into play.

They are not designed to be a home for your everyday money or short term savings, but for your longer term plans they can be vital to ensure your savings have the potential to keep pace with the rising cost of Mars Bars.


Pensions are purely a “tax wrapper”. The underlying investments can be as bespoke as you require, the Pension wrapper purely allows special tax benefits. The same is true with Stocks and Shares ISAs, or NISAs as they are now called.

Broadly speaking you should consider splitting your savings into “three pots”:

Contingency
Fund

3 - 6 Months of Outgoings

Short Term
Savings

Used Within Next 1 - 5 Years
Perhaps For A Specific Purpose

Long Term
Savings

Not Needed For At Least 5 Years
Will You Need Access Before Retirement?

How your savings are invested is a very personal thing.

 

How much risk do you wish to take, how much risk do you need to take, how much risk can you afford to take and how can you minimise the impact of tax?

 

Hankley Financial Planning has a thorough process to answer these questions and help you make the right investment decisions for your circumstances.

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Hankley Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. FSR reference number 697491
Registered in England and Wales as a Limited Company, No. 9463733
Registered Office: Send Business Centre, 3 Tannery House, Tannery Lane, Send, Surrey, GU23 7EF
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Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk