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Financial Planning

Main announcements from Chancellor Jeremy Hunts Autumn Statement 2023 at a glance

110 measures aimed at stimulating growth in the UK’s economy

Chancellor of the Exchequer, Jeremy Hunt, announced during the Autumn Statement 2023 what he said was ‘a comprehensive package of 110 measures aimed at stimulating growth in the UK’s economy’. He acknowledged the announcement comes amid a challenging economic climate. Still, Mr Hunt said he remained optimistic, pointing out that the UK’s economy has been more resilient than expected this year. Our Guide to Autumn Statement 2023 summarises the key points announced.

Economy

Growth

  • The independent Office for Budget Responsibility (OBR) expects the economy to grow by 0.6% this year and 0.7% next year, rising to 1.4% in 2025, then 1.9% in 2026, 2% in 2027 and 1.7% in 2028

Borrowing & Debt

  • Underlying debt is forecast to be 91.6% of GDP next year, 92.7% in 2024/25 and 93.2% in 2026/27 before declining to 92.8% in 2028/29
  • Borrowing forecast to fall from 4.5% of GDP in 2023/24 to 3% in 2024/25, 2.7% in 2025/26, 2.3% in 2026/27, 1.6% in 2027/28 and 1.1% in 2028/29

Inflation

  • Headline inflation forecast set to fall to 2.8% by the end of 2024 and to the Bank of England’s 2% target rate in 2025

Taxation and Wages

  • The main rate of National Insurance is cut from 12% to 10% from 6 January 2024
  • Class 2 National Insurance – paid by self-employed people earning more than £12,570 – abolished from 6 April 2024
  • Class 4 National Insurance for self-employed – paid on profits between £12,570 and £50,270 – cut from 9% to 8% from 6 April 2024
  • Legal minimum wage – known officially as the National Living Wage – to increase from £10.42 to £11.44 an hour from 6 April 2024
  • New rate applies to 21 and 22-year-old workers for the first time rather than just those 23 and over
  • Income Tax personal allowance remains unchanged and frozen until 2028 (applies to England, Wales and Northern Ireland)

Pensions & Benefits 

  • State Pension payments to increase by 8.5% from 6 April 2024, in line with average earnings
  • Consultation on whether savers get the right to choose the pension scheme their employer pays into, allowing them to possibly have one pension pot for life
  • Universal Credit and other working-age benefits to increase by 6.7% from 6 April 2024, in line with September’s inflation rate
  • Local Housing Allowance rates – which determine the level of housing benefit and Universal Credit people receive to pay rent – to be unfrozen and increased to 30% of local rents
  • Work Capability Assessment to be reformed to reflect the availability of home working after the COVID pandemic
  • Funding of £1.3bn over the next five years to help people with health conditions find jobs
  • Further £1.3bn to help people who have been unemployed for over a year
  • Claimants deemed able to work but who refuse to seek employment lose access to their benefits and extras like free prescriptions

Business & Infrastructure

  • ‘Full expensing’ tax break – allowing companies to deduct spending on new machinery and equipment from profits – made permanent
  • There has been no further change to the rates of Corporation Tax
  • Some £500m over the next two years to fund AI innovation centres
  • The 75% business rates discount for retail, hospitality and leisure firms extended for another year
  • Funding of £4.5bn to attract investment to strategic manufacturing sectors, including green energy, aerospace, life sciences and zero-emission vehicles
  • Households living close to new pylons and transmission infrastructure to get up to £1,000 a year off energy bills for a decade

Other measures

  • Alcohol duty: the government will freeze alcohol duties until 1 August 2024
  • Duty rates on all tobacco products increase by RPI +2%
  • To reduce the gap with cigarette duty, the rate on hand-rolling tobacco increased by RPI + 12% this year
  • Planning applications to be granted for businesses to allow local authorities to recover the full costs of major business planning applications if they meet guaranteed faster timelines
  • If they fail, businesses will be refunded in full and have their planning application processed free of charge
  • The government will meet its NATO commitment of spending 2% of gross domestic product (GDP), the measure of everything produced in the economy, on defence
  • Extension of National Insurance relief for employers of eligible veterans for another year to support the Veterans’ Places, Pathways and People programme
  • Scope of the current VAT zero rate relief on women’s sanitary products extended to include reusable period underwear from 1 January 2024

Autumn Statement 2023: How will my finances and business be affected?

If you want to discuss how the announced measures could affect your finances or business, please contact us for more information. We look forward to hearing from you. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
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Financial Planning

Mind the retirement gap

Crisis looming over today’s youth

Today’s twenty-somethings are on the precipice of a retirement crisis. According to new research, if they don’t adjust their savings habits, they could face an income shortfall of over £25k annually during their golden years [1]. This warning applies to young adults in the UK, aged 22 to 32, who are currently not saving enough for their retirement. The findings reveal that a significant proportion of this demographic could be staring down the barrel of a retirement savings gap.

Surprisingly, nearly one in five young people with a workplace pension (18%) need to know more about their monthly contributions. On a more optimistic note, by increasing their savings by just £30 each month, these 22 to 32-year-olds could boost their eventual pension pot by £100,000. However, if they continue their current savings pattern, they’ll likely face a substantial income shortfall of more than £25,000 annually during retirement, as per the new analysis.

This leaves a gaping shortfall

This group, comprising Zoomers and young Millennials, is projected to amass an average of £800,899 (equivalent to £242,822 in today’s money) in their retirement fund by the time they reach State Pension age, assuming current savings rates persist. This translates into an annual retirement income of around £52,699.

While this might sound substantial now, fast forward to the 2060s, and it will be equivalent to just £15,978. This leaves a gaping shortfall of £26,350 a year, which retirees will need to supplement from other sources of income.

Success and shortcomings of auto-enrolment

Auto-enrolment has been a game-changer in getting young people to save for retirement. The 22 to 32-year-old cohort marks the first decade of workers reaping the full benefits of auto-enrolment. In this scheme, employees are automatically enrolled into a pension plan, with employees and employers contributing monthly.

However, while the scheme has successfully kick-started early savings habits, there’s a growing consensus that minimum contributions must be increased to ensure adequate retirement funds. Currently, the minimum auto-enrolment contribution to an employee’s pension savings is 8% of qualifying earnings, with employers paying at least 3% and employees paying 5%. However, the Living Pension[2] savings target estimates that 12% of a worker’s annual salary should be put aside to meet people’s retirement needs adequately.

Boosting pension awareness among youth

Young people’s awareness about their workplace pensions could be much higher. The research shows that 18% of young people with a workplace pension are in the dark about their monthly contributions, and a third (34%) have never checked how much they pay.

Moreover, 37% confess they need help understanding how their pension works. This lack of engagement is largely due to other priorities, such as buying a home, which takes precedence over retirement planning for over two-fifths (43%) of young people.

Harnessing the power of compound interest

The study revealed that young people miss crucial opportunities to boost their retirement savings. An extra £30 put away each month from the age of 27 could add £100,000 to their retirement pot by the time they reach State Pension age.

However, three out of five 22 to 32-year-olds need to become more familiar with the concept of ‘compound interest’, which allows savers to earn interest on their previous years’ interest, leading to substantial growth over time.

The urgent need for action

While it can be challenging for young workers to set aside more money for retirement, especially when incomes are stretched thin, it’s essential to consider the long-term implications. Auto-enrolment has been instrumental in encouraging more people to start saving, but the retirement shortfall remains a looming concern.

More young people must understand their workplace pension and the power of compound interest. Minor adjustments now could significantly improve your quality of life in retirement.

Need further information or guidance on planning your retirement savings?

Please get in touch with us if you need further information or guidance on planning your retirement savings or that of a child or grandchild. Take charge of your future today, and to discuss your options, please contact us for more information.

Source data:

[1] Analysis based on the following research and assumptions: Opinium Research conducted 2,000 online interviews of people aged 22-32 between the 15–29 August 2023 – CPI = 3%  – Salary premium = 1% – Salary increase = 4% – Median male salary at age 27 = 35,000 – Median female salary at age 27 = 25,000 – Start saving into a workplace pension at age 22, retiring at age 68 – Investment return on pension pot, assuming broad 60/40 asset split, (6.9% p.a.) – Qualifying earnings – Currently (£6,240 to £50,270), Historical years (actual LEL and UEL), Future years (increased annually by CPI assumption) – Income based on current Legal & General annuity.

[2] Living Pension recommends 12% of a full-time salary, calculated by the Living Wage Foundation.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). 

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. 

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

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Financial Planning

The Family Bank

Planning to aid the next generation

According to new research, close to one in five (18%) of parents and grandparents have dipped into their own property wealth to assist their family members in climbing onto the property ladder [1]. Often, they turn to the equity of their homes to gather the needed funds, either through equity release, downsizing or remortgaging. This group, affectionately known as the ‘Bank of Family’, is increasingly leveraging their property wealth to aid their children’s entry into the housing market.

Using property wealth to facilitate homeownership

A significant 42% of parents and grandparents over 55 have financially supported younger family members for home purchases. They’ve utilised a mix of their savings (68%), investments (22%) and even their pension (14%). However, some have also turned to their property wealth to lend a helping hand. The nations over-55s hold more than £3.5 trillion in housing wealth[2]. An increasing number of this demographic are unlocking this wealth to offer support. Almost one in five (18%) have used their home to raise the necessary funds for their loved ones’ property purchases, whether through equity release, downsizing or re-mortgaging.

The depth of generational support

Parents and grandparents who gift often provide substantial sums, with the average support amounting to £25,600. Beyond direct financial assistance, a third of parents and grandparents have allowed adult children to move back home while saving for a deposit, saving an estimated £24,900 in outgoings. Equity release and other financial products that unlock property value require specialist advice. Surprisingly, 72% of parents and grandparents who offered support only sought professional advice after aiding their family members with a house purchase. Consequently, for many, this negatively impacted their financial situation (69%).

Potential financial difficulties later in life

While property is often a significant financial asset for many families, it’s crucial to approach such support carefully. Research indicates that many parents and grandparents do not seek guidance or advice before parting with large sums of money. This is a significant decision and should be cautiously approached to avoid potential financial difficulties later in life. Later-life lending products, like lifetime mortgages, may be suitable for some over-55s to help family members get on the property ladder. However, these options should only be considered following a conversation with a professional adviser about all available support options.

Need advice to help make the best decisions for your financial future?

If you require further information or need advice on making the best decisions for your financial future and that of your loved ones, take the first step today towards making an informed decision. Contact us for expert advice tailored to your unique circumstances. Source data: [1] Unless otherwise specified, all figures drawn from Legal & General’s 2023 Bank of Family Research 2 October 2023. [2] Office for National Statistics, Household net property wealth by household representative person (HRP) age band: Great Britain, April 2016 to March 2020. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
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Financial Planning

A timely proposition

Considering gilts for your investment portfolio?

High interest rates make gilts an attractive option for some investors, especially higher rate taxpayers who benefit from the tax exemption from capital gains. What exactly are gilts? These UK government bonds, or debt securities, are issued to finance public expenditure. Their appeal lies in their low-risk nature and guaranteed income.

Securing safe investments with gilts

Gilts are considered one of the safest investment options because the British government fully backs them. Think of a gilt as an IOU from the Treasury. Investors receive regular interest payments in return for lending money to the UK government. Most gilts offer a fixed cash payment (or a coupon) every six months until maturity, when the final coupon payment is made along with the return on the original investment.

Trading and maturity of gilts

Investors have two options: hold on to the gilts until maturity or sell them on the secondary market, much like company shares. Short-term gilts mature between one to five years, medium-term gilts have a lifespan of five to fifteen years, while long-term gilts exceed fifteen years, some even extending up to fifty years. Generally, gilts with longer lifespans have higher interest rates than those maturing soon.

Understanding gilt yields

The annual return an investor gets for holding a gilt over the next 12 months is known as the yield. It’s calculated by dividing the annual coupon payments by the current market price. Various factors influence gilt yields, including the outlook for interest rates, inflation and market demand for gilts. Interestingly, bond prices and yields move in opposite directions.

The rise of gilt yields

Since the pandemic, interest rates have skyrocketed as the Bank of England tries to control inflation. Interest rate changes significantly impact bond prices, especially when they are forecasted to keep increasing. As interest rates increase, bond prices generally fall, and vice versa. This inverse relationship is due to new bonds with high coupon rates being issued at higher interest rates than older bonds that have been issued at lower rates.

The tax benefits of gilts

While Income Tax applies to the interest earned from gilts, they are entirely exempt from Capital Gains Tax (CGT). This means there’s no CGT to pay on any profits from selling a gilt or when it matures. This exemption is especially beneficial for higher rate taxpayers who’d otherwise have to pay a 20% CGT. Moreover, there’s no tax on gilts held in a tax-efficient wrapper like an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP).

Protecting capital with inflation-linked gilts

For investors concerned about inflation, inflation-linked gilts offer a reliable way to protect their capital if held to maturity. The principal and interest are tied to inflation, ensuring investors receive a return that keeps pace with the cost of living.

Gilts and portfolio diversification

Gilts provide a safer alternative during uncertain times, and their low correlation with stock markets makes them an alternative diversifier. By including gilts in a diversified portfolio, investors can mitigate risk and balance their exposure to different asset classes as the coupon is fixed at the outset.

Are you looking to make better-informed investment decisions?

Don’t hesitate to get in touch for further information or advice on adding gilts to your portfolio. We’re here to help you make informed investment decisions. To find out more, contact us – we look forward to hearing from you. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. 
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Financial Planning

Aspiring towards retirement

Why many people experience a mixed bag of emotions on the subject

Retirement is often envisioned as a time to unwind and indulge in our passions after years of hard work. However, recent research indicates that many individuals feel apprehensive about retiring due to financial and emotional concerns[1].

The rise of ‘retirement anxiety’

The escalating cost of living is putting a strain on income and savings, leading to a growing phenomenon we call ‘retirement anxiety’, particularly among those over 40. The latest findings show that nearly two-thirds (58%) of over-40s are nervous about retiring, with 20% being ‘very anxious’. This represents a staggering 70% increase from our 2022 findings.

Impact of anxiety on retirement plans and personal life

The anxiety is so severe for 18% of adults that it causes them sleepless nights. More than one in ten (11%) state that anxiety negatively affects their personal life and relationships. Consequently, 13% of adults have postponed their retirement plans due to this anxiety, rising to almost two in ten (18%) for those over 55.

A concerning trend for the unprepared majority

Despite these anxieties, the research reveals that almost half (41%) have made no preparations for retirement. To help alleviate some of these worries, here are some tips:

Assessing your current assets

If you’re among the 39% who fear not having enough money to last through retirement or the 33% who worry about affording desired activities, start by assessing what you already have. This will help you understand your proximity to your dream retirement and identify any gaps you need to fill.

Boosting your savings

Now that you know your current standing and potential needs, you can begin strategising how to bridge any savings gaps. With 43% of adults feeling they haven’t saved enough for retirement and 27% regretting their late start, having a plan can help alleviate these concerns.

Preserving your savings

In today’s world, 29% of adults struggle to save for retirement while managing current living expenses. While the rising cost of living is pressuring many households, try to avoid dipping into your retirement savings early.

Consolidating your pensions

You might find it beneficial to consolidate multiple pensions into a single pot. This could decrease your annual fees and simplify management. However, ensuring you will retain valuable benefits in the process is crucial.

Rethinking your income strategy

With 39% of adults concerned about the rising cost of living affecting their retirement plans and 24% worried about the economy’s impact on their pension and investments, it could be time to reconsider your income strategy in retirement.

Exploring work opportunities in retirement

Retirement doesn’t necessarily mean complete withdrawal from the workforce. In fact, 14% fear losing their identity when they stop working. Whether you opt for a ‘flexi-retirement’, part-time work or starting a new business, the key is to do what makes you happy.

Need help making informed decisions to ensure a comfortable and fulfilling retirement?

Retirement is a significant milestone that often feels distant until it’s right around the corner. But remember, we offer plenty of support to guide you through your retirement journey. If you need further information or assistance navigating your retirement planning, please get in touch with us. Source data: [1] abrdn plc – Don’t let retirement anxiety push you off track – 22/09/23. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).  THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.  YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
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Financial Planning

High costs of private education

The significant decision of choosing a private school for children

Choosing the right educational path for your children is one of the most significant decisions you will make as a parent. Among the many considerations, private schooling often emerges as an option due to its perceived benefits, such as smaller class sizes, specialised programmes and personalised attention. However, the high costs associated with private education can make this decision even more complex. Data from the Independent Schools Council reveals that the majority of pupils attend day schools, meaning the typical fee level is £5,552 per term or £16,656 per annum, a rise of 5.8% from 2021 to 2022[1]. This equates to a hefty total of £116,592 per child for those who opt for private secondary schooling through the end of sixth form. And these figures don’t include potential increases in fees over time. The financial burden can be even greater if considering private primary or preparatory schools.

Easing the financial burden: Role of wealthy grandparents

However, grandparents have the capacity to alleviate this financial strain on their adult children while simultaneously addressing a looming Inheritance Tax (IHT) issue.

Inheritance Tax: A growing concern

UK families are increasingly feeling the pinch of IHT when family members pass away. In the fiscal year 2022/23, IHT receipts touched a record high of £7.1 billion, according to HM Revenue & Customs (HMRC) figures[2], an astounding 108% increase over the last decade. Presently, IHT is levied at a rate of 40% on estates exceeding the nil-rate band, which stands at £325,000, or £500,000 if the property is being left to children or grandchildren.

Navigating IHT: Role of gifting

One method of reducing your loved ones’ IHT burden is to start giving away surplus money. The less money you possess over the nil-rate band, the smaller the tax bill. For grandparents, contributing to school fees can serve a dual purpose: reducing your IHT bill and witnessing your grandchildren benefit from your wealth. With IHT gifting rules, implications arise when gifting outside of the exemption rules. However, there are no limits on the amount you can give away. Here are several allowances you can leverage, whether you’re paying the entirety of the school fees or making a contribution. Yearly Exemption: Every year, you can contribute £3,000 tax-free to any individual of your choice. Couples can unite to offer a combined tax-free gift of £6,000. Moreover, you can carry forward the unused portion from the previous year, although this can only be done once. This yearly exemption can also be paired with a donation from surplus income and given to the same recipient. Gifts beyond allowances and Inheritance Tax (IHT): Even if your donations exceed these allowances, you might still not have to pay IHT and some gifts may be chargeable lifetime transfers. Any gifts you make that go beyond the allowed exemptions are seen as ‘potentially exempt transfers’ and fall under the seven-year rule. This implies that if you survive for at least seven years after making the gift, it will be removed from your estate and won’t be subject to any IHT. If you pass away before seven years, taper relief may apply to gifts surpassing the £325,000 threshold.

Trusts: An effective tax strategy

Instead of making direct payments to your children’s school, you might discover tax benefits using a trust to fund your gifts where the gift would be to the trust. When you donate money into a discretionary trust, control over the underlying capital’s management is in the hands of the trustees, who could be the grandparents and/or the parents. Yet, the income produced could be applied towards school fees. This approach can be advantageous from an IHT planning perspective.

IHT planning and trust advantages

Any amount can be transferred into a trust. These assets will be exempt from IHT provided they live for seven years post-gift. An added perk of this method of school fee funding is that the income produced by the trust is taxed at the beneficiary’s rate – that is, the child’s if the trust is absolute. Given that the child is likely to have a lower tax rate than other family members, this can lead to substantial savings.

Trust continuation and university funding

Another advantage is that the trust can continue to operate even after the child has finished school, providing financial support for university life. If the trust is absolute, the child would have to agree to this. However, trusts are complex structures and grandparents cannot benefit once a trust is established. Additionally, given the complexity of trusts, it is crucial to seek professional advice before setting one up.

Need to formulate your plans sooner rather than later?

Early planning is crucial if you face a potential IHT liability and wish to help fund private education for your grandchildren. Discussing it with your children and formulating plans sooner rather than later can be beneficial. To find out more, please contact us and we’ll explain your options. We look forward to hearing from you. Source data: [1] ISC Census and Annual Report 2023. [2] https://www.statista.com/statistics/284325/united-kingdom-hmrc-tax-receipts-inheritance-tax/ THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. 
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Financial Planning

Journey to monetary autonomy

Optimising your finances and formulating an all-encompassing wealth plan for the future

Everyone is entitled to monetary autonomy, and maintaining financial wellness throughout life is more of a marathon than a sprint. One must deeply grasp one’s financial status to reach short-term and long-term objectives.