Update your financial checklist for 2023

Summary: Here are some simple things you can do to help maximise your wealth.

Welcome to the new year! How are you approaching 2023 so far? It’s of course traditional around this time of year to try and become healthier. But it’s not just dry January that’s at the top of the to do list.

With so much focus on the cost of living, many of us are taking a closer look at our finances too, particularly our monthly outgoings – what direct debits can be cancelled, what dormant accounts can be closed etc.

This is great for the short term, but what about long term? What sort of shape are your finances in for the year ahead and beyond? Maybe you have investments you’ve not checked on in a while that could benefit from consolidation? Or perhaps your financial plans just need a bit of a refresh?

In our last post, we looked at the positive impact on your wellbeing that comes from knowing your finances are sorted. Continuing this theme – and with this being a traditional time of year for taking stock and looking ahead – we’re focusing on some of the simple things you can do to help maximise your wealth.

Consolidate your accounts

The first thing you can do is make sure you know where all your investments and savings are. Across the UK there are almost three million pensions pots classified as ‘lost,’ worth a combined £26.6 billion.[1]

Lost doesn’t mean lost forever. Retracing previous pension providers is straightforward, especially with the help of organisations like the Pensions Tracing Service.

But ‘out of sight out of mind’ as they say. The time these accounts stay lost can really impact your final pension pot, that’s why it can be a good idea to consolidate your accounts. The benefits include significantly reducing the charges you pay, cutting back on paperwork, and making it much easier to measure how your investments are performing.

Check in on your investments

Next, let’s look at how those investments are doing. As we’ve been reminded by the market jitters experienced last year, investing is uncertain – but markets don’t stay down forever. Putting money aside for your future means thinking long term and not micromanaging your portfolio by constantly chopping and changing.

But it is a good idea to check in every so often and see how those investments have measured up. For example, do you have the right balance of stocks, bonds and other securities to match the levels of risk and what you want to achieve financially? Does your investment portfolio match up with its stated aims? Have the goals you set at the beginning of your investment journey changed, meaning a modification of your financial plan is required?

At AAB Wealth we have an evidence-based approach to building you the right financial plan. In a year of volatility and change, we can help you look at your investments, explain how they’ve fared in the face of fluctuating markets, and help make sure you maintain the right path.

Revitalise your ISA and give your finances an early spring clean

One of the simplest, most tax-efficient ways to invest or save is with an ISA. But while more than 12 million adults subscribed to ISAs for 2020/21[2], the overall number has fallen over the last decade. Also, many people won’t be getting full value out of these as they are not putting in their full ISA allowance (£20,000 for the current tax year).

The deadline to use this allowance isn’t until 5 April, but now is actually the best time to pay in a top up, or increase you direct debit, to avoid a mad rush at the end of the financial year.

Ahead of the new tax year, it’s a good idea to use this time to make sure you and your beneficiaries will get maximum value from your savings – minimising capital gains tax and managing the potential inheritance tax owed on your estate. For example:

• Tax-free gifts to children or grandchildren (you can give an annual gift of £3,000)
• Using your capital gains tax allowance (for example, transferring assets to spouses or partners)
• Topping up your pension (you get an annual allowance of tax relief on pension contributions – 100% of your earnings or £40,000, whichever is lower)
• Max out your ISA allowance (the level of tax-free savings is currently set at £20,000)

Get the most out of your state pension

Finally, it’s important not to forget about your state pension.

To qualify for a full state pension, you will typically need 35 full years of National Insurance (NI) contributions – and there’s been much publicity recently about making voluntary contributions to make sure your NI levels are up-to-date.

But a change in rules after 5 April alters the extent you can do this. Up until then it’s possible to fill any gaps in your NI record between 2006 and 2016. After this date, you’ll only be able to go back a maximum of six years.

Even if you’ve worked for 35 years or more, with many rule changes over the years, it’s important not to assume you’ll be entitled to the full pension. It’s possible you have been ‘contracted out’ at some point, suspending your accrual of NI credits.

So, if you’ve not done so already since 2016, we recommend you request a State Pension forecast.

To get help doing this, or for any more advice on maximising your wealth this year please contact us or book an initial consultation for free. 

[1] Pensions Policy Institute. Lost Pensions 2022: What’s the scale and impact?

[2] UK Government Commentary for Annual savings statistics: June 2022