When financial rumours are circulating, especially pre-Budget, it’s important to react with prudence. Above all, wise investors never react to speculation
The prospect of an imminent Budget is rarely a cause for celebration. Some of us may have been encouraged by a Labour manifesto that promised, among other commitments, not to raise the rate of income tax or VAT. This, with the recent and seemingly relentless increases in the cost of living, rated near the top of the immediate worry list.
Life of course is rarely that simple and when earlier this month Chancellor Rachel Reeves said she was after all “looking at further measures of tax” and was considering cuts in public spending, optimism faded under a wave of speculation as to exactly what we can expect on November 26.
Paul Gillen is a Chartered Financial Planner at Acumen Financial Planning based in Glasgow and has seen several similar scenarios before.
The firm, which launched in 2002, also has offices in Aberdeen, Edinburgh and Elgin. It emphasises the value of personalised financial advice – and against being unnecessarily influenced by much of the current speculation.
Gillen recalls rumours ahead of the 2024 Budget that the UK Government might reduce or remove the 25% tax‑free lump sum available from defined‑contribution pension pots. Many savers withdrew money before the rules potentially changed without realising the long-term consequences – and, in fact, the fear of losing tax advantages proved groundless.
Among this year’s conjectures is the extension of the current freeze on income tax thresholds, due to end in 2028, and meaning – as salaries rise – more people reach an income level at which they start paying tax or qualify for higher rates, often referred to as a
“stealth tax”.
And more recently there has been the recurring suggestion that the tax-free allowance on cash ISAs will be reduced from £20,000 to £10,000.
“In reality nothing has been confirmed but the feeling is that it’s something the Chancellor is seriously considering,” says Gillen.
“Again, this was a rumour last year but banks and building societies pointed out that it wouldn’t change people’s savings habits – they would still retain the same level of cash, albeit in different non-ISA accounts.
“Additionally, banks and building societies needed these savings to fund their own lending.”
Plus, this would only affect savings going forward; not people who had existing funds in a cash ISA, he adds. “The stocks and shares ISA allowance would remain as it is – so the hope that people will choose investment over cash savings is unlikely in the short term.”
In this, as in several other areas, Gillen stresses the need to keep a cool head, separate speculation from reality and realise the importance of avoiding panic decisions based on rumours or headlines.
Paul Gillen of Acumen Financial Planning Ltd (Image: Ross Johnston/Newsline media)
Trying to anticipate changes in the market and pension legislation, he emphasises, is unwise. “We have weathered several crises in the past two decades, most notably the global financial crisis of 2008-2010. While this was followed by a period of about 10 years where markets did relatively well, then came Covid, the war in Ukraine and US President Trump’s Liberation Day tariff announcements.
“What we tend to see now are more short, sharp shocks that cause the market to fall suddenly.”
Acumen, he says, reminds its clients market volatility is a feature of investing rather than a risk.
“Major events will inevitably occur at some stage in the future but over the longer-term markets tend to deliver strong returns.
“We try to coach our clients to react calmly and rationally when these events happen. The essential thing is not to panic and try to sell investments when you see the market going down,” he says.
“We spend a lot of time speaking with our clients about their income and expenditure, estimating what their spending plans will be over the next five years using modelling software.
“We aim to ensure they have enough in either cash or defensive assets to avoid the risk of having to sell during an imminent market downturn.”
Gillen also reminds us there are no dividends to be enjoyed in worrying about the future when the time to spend is now.
“Or, as my granny would say: ‘There are no pockets in a shroud’. We have clients entering retirement and, when looking at their spending profile, we remind them the opportunity to enjoy travelling and the other things they want from life is likely to be now.
“As they get older, they will tend to need and spend less.”
Returning to this year’s Budget he says: “The key thing is not to try and pre-empt what will be announced and base our recommendations on facts rather than speculation.
“Our goal is to encourage clients to act calmly and prudently to achieve their aims. There will be a Budget this year, next year and every year thereafter – the key message for our clients is ‘live your best financial life’ now.” n
l Acumen Financial Planning Ltd is authorised and regulated by the FCA, FRN 218745. The content within this article is for information purposes only and should not be regarded as advice.