Five things financial advisers should know following Spring 2021 Budget.

Following yesterday’s Budget announcement, we asked market experts across investments, pensions, protection and employee benefits to tell us what financial advisers need to know in light of these important changes.

1. Stamp Duty Holiday extension should help drive protection sales

Nick Telfer, Protection Development Manager at Vitality feels that the extension of the Stamp Duty holiday and the introduction of the Deposit Guarantee Scheme should help to keep the housing market going and provide some opportunity to advisers to write protection.

“With the impact of Covid-19 making people more aware of their vulnerability this should make protection conversations easier.”

Research that we conducted last year revealed that more than a third of people said that the pandemic has made them more aware of the need for life insurance, rising to more than half for those aged between 25 and 34¹. 

Matthew Chapman, Financial Commercial Director, agreed that Stamp Duty relief has helped sustain the housing market, however added that it is essential that advisers “remember to use this opportunity to talk to more of their clients about protection and ensure each and every client is adequately protected and financially resilient moving forward”.

Nick Telfer suggests, however, that the potential downside in the longer term is that it over stimulates the market and pushes house prices up and ratchets up the deposits needed. “It also needs lenders to come to the party and while it was suggested some have agreed to support the deposit guarantee it will be interesting to see whether others follow.”

2. The Lifetime Allowance freeze makes it even more important for investors to seek financial advice

The Lifetime Allowance (LTA) freeze means it will now be £125,000 less than it was originally projected to be.

Mark Baldwin, Investment Distribution Director at VitalityInvest believes that “pensions remain the cornerstone of financial planning for retirement but the government’s decision to freeze the lifetime allowance until 2026 is not helpful to those planning their retirement through pension investing.”

“With the pandemic creating an uncertain jobs market and the government moving the goal posts, this will have an impact on retiree’s plans. It’s therefore never been more important for savers to seek financial advice to help them navigate these challenges and adequately consider whether they have prepared for a retirement of their choosing – whatever that might look like.”

Read our Budget 2021 review from Martin O’Gorman, Pensions and Technical Specialist, VitalityInvest.

3. Furlough scheme continuation should increase focus on financial resilience

The Government’s Coronavirus Job Retention Scheme (CJRS) will continue to cover 80% of wages, with employers expected to make small contributions of 10% from July and 20% in August and September.

While furlough extensions have been a financial lifeline for many, however it is important to recognise that the scheme has not helped everyone, especially many who are self-employed, argues Jiten Varsani, mortgage and protection adviser for London Money.

“As a protection adviser we should continue to highlight the importance income has on our daily living and how fragile this income can be. Covid-19 has been a global crisis and as such the UK Government has introduced help on a national basis. In the future, if tragedy strikes on a personal or smaller scale, such support will most likely not be forthcoming.”

Plus Financial’s Matthew Chapman added: “The extension of the furlough scheme only serves to highlight our continued reliance on regular income and provides advisers with the perfect example of why lifestyle insurances, such as Income Protection, are so fundamental and should not be ignored.”

With employers required to contribute 10% towards wages from July and 20% from August and September, the Budget also helped highlight the importance of business protection to shore up the finances of firms going forward.

4. ‘Wealth’ tax rises on the horizon

According to Martin O’Gorman, Pensions and Technical Specialist for VitalityInvest, the overall the Budget announcements “appear quite light in view of the necessary demands on government borrowing”.

“Whilst there were no clear immediate tax rises, the freezing of the LTA, Inheritance Tax (IHT) thresholds and the Capital Gains Tax limits coupled with the freezing of the income tax and National Insurance (NI) thresholds from 2023 all give rise to a set of ‘wealth’ tax rises in all but name.

“All of these changes only highlight the need for investors to seek out and utilise good financial planning and advice,” he adds. “With the Lifetime Allowance now being less than it was projected to be, savers who were close to the limit will need to review decisions taken around ongoing funding and future crystallisation events. From an ISA annual subscription perspective the old adage around ‘use it or lose it’ remains and future planning around IHT may need to be revisited.

5. Employers will be encouraged to further support workplace wellbeing

Healthcare plans will not be hit by increases to Insurance Premium Tax and there were no mentions of additional costs for healthcare trusts. Vitality Adviser Rikki Lanzarotti described this as a “deliberate move” that will help entice employers to provide health insurance schemes to employees.

She said: “The Government is going to want people to purchase private medical insurance (PMI) more than ever now – so there’s less strain on the NHS and it will help cut waiting lists down and prioritise more conditions such as cancer and heart patients.”

Meanwhile, the Chancellor’s focus on green initiatives will also help incentivise healthy employee benefits such as cycle-to-work schemes.

According to a Public Health England survey at the turn of the year², there are signs that the pandemic is helping nudge people toward healthier lifestyles. It showed that seven in 10 adults are motivated to get healthier in 2021 due to COVID. Some 40% said they wanted to eat more healthily, lose weight and exercise more.

“Making these lifestyle changes also helps to manage the risk of other lifestyle conditions such as cancer and heart disease and have a positive impact on mental health,” said Nick Telfer.

“This means Vitality’s propositions are even more relevant tools for advisers looking to meet their customers Protection, Health Insurance or Investment needs and to support them on their road to better health.”

Sources:
1. https://www.covermagazine.co.uk/news/4021375/covid-19-major-life-event-triggering-protection-interest
2. https://www.gov.uk/government/news/seven-in-10-adults-are-motivated-to-get-healthier-in-2021-due-to-covid-19