We have all experienced many changes over the last few weeks. Not only have we seen changes in the equity markets and our working patterns, but also our personal lives have been transformed dramatically too.
So, what have we learned in this time?
Pensions and the annual allowance
In the recent budget, the government kept its promise to address the pensions issue, in particular with the annual allowance. The annual allowance of £40,000 remains but the circumstances of how this will be reduced have changed for many, especially for some of our higher earning doctors and dentists. The all-important threshold income figure has been increased to £200,000 – that’s a £90,000 increase! Only if your threshold income exceeds this level will you have to consider adjusted income.
However, if your adjusted income exceeds £240,000 per annum, then you will be subject to a reduced annual allowance and possible tax charge. For more details on this subject see our article: 2020 Budget update: What does it mean for doctors and dentists? >
Pensions and protection
As you are probably aware the NHS pension scheme offers valuable protection benefits including life assurance, and a pension if you are unable to return to work, as well as a dependent’s pension.
It is always wise to check your current personal protection arrangements as they are the financial foundation of all planning. We are aware that some medics have left the NHS pension scheme, largely due to the annual and lifetime allowance limits. You may wish to reconsider your position on this matter as some of the protection elements are lost or change if you are not contributing to the pension scheme.
The changes noted above, plus the loss of valuable personal protection elements mean now is the time to re-examine if leaving the NHS pension scheme was the right move for those who took that big step.
Many families are suffering financially, some dentists have seen their income stop altogether. Households that are reliant on two incomes may have had one cease and private practice for many has slowed or at worse halted.
Having a robust emergency fund allows you to have greater peace of mind. An emergency fund is money set aside that is easy to access. Ideally, this should be a least three months’ income. It is not ideal to live from one payslip to another. Having a financial buffer gives you freedoms. It can allow breathing space to make important decisions as and when they occur, often buying you some time. It is best to set the money aside so it’s not in your current account and doesn’t get mixed up with your day to day living.
If you haven’t made this provision you may be reading this and saying to yourself ‘It’s a bit late now!’. But as this current situation passes…and it will…make setting up an emergency fund a new goal in your post-corona financial landscape.
I hope we never experience something on this global scale again but you will, without a doubt, experience your own difficult times and your future self will thank you for making this change.
Over the last 10 years, we have experienced the equity markets steadily moving in an upward direction, so for some, this will be the first taste of a market downturn. For our longer investors, possibly their second or third experience. Each market downturn has its own unique circumstances, but the results are the same – each leaving its little scars.
This is why it is important to remember why you are investing and that for most it is for the mid to long term. The worst course of action is to crystalise the losses by encashing. It is far better to sit tight and weather the storm, so to speak – they do pass. See our recent article: COVID-19: The impact on investments Q&A >
We can only imagine the pressures that you are currently facing, on a personal, professional and financial level. As we emerge from this crisis some will be in better financial shape than others. I would suggest from a financial perspective you seek advice from advisers and accountants to make sure that you are looked after. Maybe you have always taken advice about your finances and will need to alter your plan in light of recent events. However, if you have always been pretty relaxed about your finances and planned little, now may be a good time to start to take specialist advice to ensure you get back on track as quickly as possible.
The value of investments can fall as well as rise. You may not get back what you invest.
This article does not constitute personalised advice and that advice should be sought before taking any action.
Any information included in the article represents our understanding of law and HM Revenue & Customs practice as at 7th April 2020.
Would you consider setting up an Emergency Fund in case of a future financial crash? Let us know by adding a comment below.