Interactive Investor

ii expert tips: interest rates, tax, and pensions in 2024

Victoria Scholar, Craig Rickman and Nina Kelly discuss what might happen to the UK economy this year, how it might affect our finances, and tips to get your pension in shape.

5th January 2024 09:14

by the interactive investor team from interactive investor

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Victoria Scholar

Rates, inflation and the economy in 2024

After the post-pandemic revival of inflation, central banks desperately raised interest rates in an attempt to cool prices pressures. Global factors coupled with monetary policy tightening from the Bank of England helped push the UK’s inflation rate much closer to the 2% target than it was in October 2022, when inflation hit 11.1%, a 41-year high.

In 2024, UK inflation is expected to continue easing. The Bank of England’s latest forecasts suggest CPI inflation will drop from 4.6% in the final quarter of 2023 to 3.1% by the fourth quarter of 2024 before finally reaching more normal levels by the end of 2025.

The year ahead will mark a change in policy direction for the Bank of England. With inflation on the way down, the central bank is likely to be at the peak of the tightening cycle. However, interest rates are expected to remain higher for longer, with the central bank predicting that the Bank Rate will remain at around 5.25% until the third quarter of 2024. Some analysts, however, are more dovish. Morgan Stanley, for example, is expecting a cut to rates as soon as May, with the base rate potentially falling a full percentage point by the end of the year.

As a general election looms, the UK’s economic outlook is shaky as cost-of-living pressures, higher interest rates and inflation continue to bite. Some say we could tip into a shallow recession, while others expect growth fractionally above zero. Either way, the UK is bracing for a difficult period of stagnation.

Craig Rickman

Your money and tax tips for 2024

2023 proved a tough 12 months for our finances. But the year ended with a few bright notes that could provide a timely boost to your money.

Here are some of the key things to look out for in 2024.

With class 1 national insurance dropping from 12% to 10% at the start of the year, the average employed worker will be around £450 better off.

Meanwhile, there’s good news for both the self-employed and retirees, with big reforms taking effect from April.

The combination of class 2 national insurance being scrapped, and class 4 falling from 9% to 8%, will see the average self-employed worker save more than £500 a year in tax.

And after the government kept its pledge to maintain the state pension triple lock, retirees could pocket an extra £900 a year.

Elsewhere, there are a couple of big dates to remember in the first few months of 2024.

Fiscal events are always big news in personal finance circles. However, the 2024 Spring Budget carries some spice given a general election is expected to be called shortly after. Will Chancellor Jeremy Hunt slash inheritance tax and income tax to get voters onside? Possibly.

And finally, tax year end.

Between now and 6 April, it’s important to maximise your tax-free perks to shield your wealth from HMRC. The dividend and capital gains tax allowances are both halving from April, and it’s crucial to consider filling up your ISA and pension allowances before you lose them.

Nina Kelly

Three pension ‘quickies’

Retirement can seem like a long way off, especially if you are in your 20s or 30s, but a few minutes spent considering these three tips could be of huge benefit to future you.

First, how much are you paying into your pension? If you don’t know, find out. Under auto-enrolment rules, when it comes to defined contribution pensions (this is most people with a workplace pension), your employer must chip in at least 3%, while you must pay in 5% of your salary, to bring the total to the mandatory minimum of 8%.

However, some employers are more generous and contribute above the 3% minimum. They might also offer contribution matching. This means that if you were to contribute 5% of salary, they match it, so a total of 10% goes into your pension. Taking advantage of contribution matching means more money goes into your pot, which is important since it’s widely accepted that 8% is inadequate for a comfortable retirement.

Second, think about who you’d want to inherit your pension if you were to die early. Death is never a fun thing to think about, especially during the holidays, but keeping your beneficiaries’ form up to date could spare your loved ones extra “sadmin”. My pension provider allows me to update the expression of wishes form quickly online. It’s particularly important to update the form if you get married or divorced.

Finally, look online at the Retirement Living Standards, which are produced by the Pensions and Lifetime Savings Association. This research should give you an idea of how much you might need to save.

Estimates for singles and couples consider practicalities such as whether you want to run a car when you’ve stopped work, and what size pot you’ll need for an annual holiday abroad. You might decide you need to put more money aside for old age.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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