Spring Statement: Five takeaways for financial advisers

The Chancellor’s measures to offset soaring cost of living have put the need for financial advice back into the spotlight.

In a bid to help the most financially vulnerable in the UK, Chancellor Rishi Sunak announced a string of measures during his Spring Statement in the face of rapidly rising cost of living.

As well as cutting fuel costs by 5p a litre, he pledged VAT relief for energy efficiency and the household support fund will increase to £1bn from April, alongside a promise to cut the basic rate for income tax 1% by 2024.

However, with energy prices soaring and continued supply chain pressures along with slower economic growth being impacted further by the fall-out of the Ukraine/Russia conflict, it is likely that low and middle earners are going to feel the pinch most. Here are five things for financial advisers to consider.

1. Cost of living will continue to erode savings

Despite making some strides towards supporting families financially, it is unlikely these measures will go far enough to offset rising costs. During February, inflation reached 6.2% - the highest level since March 1992 - and as this continues towards the OBR’s predicted average rate of 7.4%¹ it is likely to erode the value that can be derived from pension pots. “With less money available, a trade-off between spending and saving will need to be made within households and this is where a financial adviser can add genuine value, especially where market volatility is concerned,” said Steven Kransdorff, Head of Investment Product Development, VitalityInvest. “This might involve guidance to ensure clients don’t lose sight of future goals; some may benefit from cashflow modelling exercises, while those holding large amounts in cash will need advice on how to manage risks of sustained inflation.”

2. NI hike is still going ahead

In the face of calls to scrap the National Insurance (NI) hike to pay for NHS/Social Care, Rishi Sunak confirmed the levy will still go ahead. Despite announcing that the NI threshold would increase from £9,880 to £12,570 to help low earners in July 2022, the likelihood is that the majority of people will be negatively impacted financially. “More than ever people will need to ensure that their disposable income is working for them and this is where financial advice can help,” said Kim Jarvis, Tax and Trusts Technical Consultant, Vitality.

3. Wealthy to pay more despite tax freeze

The Chancellor stopped short of raising tax for higher earners. However, this does not mean they won’t be impacted. The frozen lifetime allowance, rising inflation and higher property prices all mean the wealthy are likely to be paying more, as they get pushed into higher tax brackets or breach IHT thresholds. HMRC collected £5.5bn in IHT between April 2021 and February 2022 - £700m higher than the same period last year². “Advisers can also add value here by providing advice on trust structure, gifting and other means to limit IHT liability,” added Kransdorff.

4. Need for financial protection cannot be ignored

With many households questioning everything they spend, the current economic situation is putting the importance of financial resilience into a whole new light. “Clients should consider what cover they have in place should they find themselves unable to work; while people may have in the past expected to fall back on their cash savings, with inflation now higher than savings rates, this may no longer be the case,” said Kim Jarvis.

5. Seeking out financial advice is more important than ever

The Chancellor’s Spring Statement provided yet another reminder of the financial instability many clients will face over the coming months. Against a backdrop of economic uncertainty and with tax year end approaching, the need for expert advice is only going to intensify, as people - both earning a living or in retirement - look to safeguard their money against the risks of sustained inflation, invest wisely amid market volatility and protect themselves financially for the future.

Read more about inflation and how it is likely to impact clients. 

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VitalityInvest makes every effort to ensure that the information provided in this commentary is accurate and complete but no guarantee or warranty is given. This commentary is for general information purposes only and is not to be relied upon in making an investment or any other decision. Nothing in this commentary constitutes investment, legal or any other advice. This commentary is for investment professionals only and any retail customers should speak to an authorised financial adviser before making any investment decision.