Wealth management strategies – four steps to a richer future 

It’s not just about investing, our tailored financial planning wealth management strategies can help you maximise your money’s earning potential whatever stage your wealth-building journey is at.

With taxes rising and people living longer, it’s essential to make full use of personal allowances and long-term investment options.

When Rishi Sunak, the Chancellor of the Exchequer, unveiled his March budget the backdrop was the need to pay for the £407 billion cost of the pandemic. He stuck to the Conservative manifesto pledge that there would be no increase to income tax, national insurance or VAT. However, the bad news was that he froze personal tax allowances until April 2026.

“That reduced the real value of these allowances over time, after inflation,” notes Tim Robson, Chartered Financial Planner, Mercer Private Wealth. “What’s more, he didn’t rule out further freezes, or even reductions.”

Given the prospects of further tax pressures, what the budget emphasised for people accumulating wealth was not the need to make full use of their allowances over the long term. The principles for doing so are fairly simple, even if the surrounding tax rules and investment strategies may seem complex.

A golden rule for long-term wealth planning is diversifying the tax wrappers you use as much as possible. Emphasising this point, the budget froze the lifetime allowance for pensions at £1,073,100 until April 2026. So, structuring wealth to take advantage of a range of allowances beyond pensions is increasingly important.

In fact, a retiree who has carefully structured his or her wealth could have a maximum tax-free income of £32,800 a year (based on tax rates and allowances for tax year 2020/21) by holding investments in a number of different tax wrappers. The main ones are a general investment account, an offshore bond, an individual savings account (ISA) and a pension.

“Most people tend to invest in some of these tax wrappers, but not all of them,” explains Robson. “Each tax wrapper with the exception of the ISA will enable individuals to access a number of the personal tax allowances, either on natural income generated or when withdrawing money.”

With a year unlike any other having just passed, clients have had more worries than usual, again related to long-term wealth. So, what are they concerned about?

Firstly, people who have saved money are seeking advice about securing the future for children and grandchildren. A recent report suggested there’s about £125 billion of extra savings looking for a home.

“Conscious that children and grandchildren want to get onto the housing ladder people are looking for things like gifting into lifetime ISA accounts and how we make use of the tax allowances,” explains Gordon Armstrong, Head of Advice, Mercer Private Wealth. “We’ve seen grandparents wanting to fund pensions for children and for grandchildren. If you bear in mind that every child has a personal tax allowance, it’s advantageous to make a gift into a pension plan for them. Doing so over a number of years, it gives the grandchild a nice windfall in later life.”

Secondly, clients are worried about further tightening of the tax rules around inheritance and capital gains. “So, our planners are increasingly making sure that our clients follow a nice sequence of basically filling up the pots tax efficiently,” says Armstrong.

As many people have been made redundant in later life through the crisis, this has raised the prospect of flexible retirement. With more lifespans stretching to 100, pensions have to provide an income for longer. It’s important to plan for semi-retirement before full retirement.

When drawing money down from investments, Mercer Private Wealth advises getting the sequence right in order to take full advantage of the £32,800 of annual tax allowances. Areas such as ISA savings and offshore bonds should be drawn first, leaving pensions until last. Why? Because there are taxes to pay on withdrawing money from pensions. Also, pensions don’t form part of your estate for inheritance tax purposes.

Is now the time to invest? This is a question regularly posed by clients around stressful points in markets. But as investment managers, we’re here to take the emotion out of markets.

COVID-19 is not the only event that has unsettled equity markets in the last 20 years. We've also had the dotcom bubble and the global financial crisis. However, an individual who invested in a global equity strategy in 2000 would have achieved a 210% return. So it’s time in the market, rather than timing the market, that matters.

Where should an individual invest today? There are many issues that are likely to influence wealth management strategies - the relative strengths of markets, including geopolitical rivalry between China and the US, stalling globalisation and the climate transition.

“From an investor's point of view, this means positioning portfolios now,” explains Hilary Winn, Mercer Private Wealth’s Investment Director. “Sustainable strategies have outperformed of late, for example, with implications for client portfolios. We are alive to these trends."

Important information: please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. Tax rules can change and the value of any benefits depends on individual circumstances.

The theme of taking a long-term approach resonates through not just investment but also wealth planning more broadly. Using the tax wrappers frozen in the budget to their full potential has never been more important, especially if people are going to live to 100. With wealth under pressure, no opportunity to fire up wealth should be missed.

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