Looking back - how has 2024 impacted your financial future?

For some people, the relative stability of 2024 was a welcome reprieve from the volatility of preceding years. But for others a feeling of struggle prevailed and tax rises caused concern.

Though it might not feel like it, 2024 has largely been a period of calm and stability from a finance perspective. Especially, that is, when compared to the few years preceding it which were rocked by market volatility and high inflation – 11.6% in 2022 and 9.7% in 2023 (RPI).

To the contrary, equity markets have by and large performed strongly throughout 2024, with little disruption, and inflation has steadied to low single figures. Energy and food bills, the areas where consumers most likely felt the biggest sting, have largely settled down too.

However, with interest rates still high and people still experiencing the contrast between high inflation and lower wage rises in recent years, the feeling of difficult times remains prevalent across much of the country, particular among mortgage holders and renters.

“Aaron Banasik - Independent Financial Adviser2024 has been pretty interesting and I think clients have experienced a mixed bag,” says Aaron​ Banasik, Independent Financial Adviser at Ascot Lloyd. “On the positive side, markets have had a pretty strong year, especially around American equities. That's mainly down to the performance of the tech sector, AI is storming through, and you also can't ignore the bump in the markets since Trump won the US presidential election in November.

“It's still challenging out there, however, especially for people with loans and mortgages. From my own conversations with people, the common theme in the past 12 months has been the persistent issue of inflation and rising costs. It’s certainly been the biggest concern among my clients and despite inflation falling I think people are still feeling the bite of high prices, resulting in many taking quite a defensive approach to their own personal finances.”

Moving the goalposts

From one sporting analogy to another, 2024 on the fiscal front could be described as a game of two halves. The first half of the year, including a tax-cutting Spring Budget, continued a theme of relatively generous fiscal policy which had endured for several years, certainly through the Covid-19 crisis with the various grants, loans and furlough schemes.

Even after the pandemic, with bills skyrocketing and mortgage rates multiplying as the Bank of England embarked on a run of 14 consecutive interest rate rises in an effort to tame inflation, the government provided an unprecedented package of support for energy bills. It also reduced national insurance, albeit against a backdrop of frozen income tax bands and reductions in allowances such as capital gains and dividends, while increasing the annual allowance for pension contributions by 50% and abolishing the pension lifetime allowance.

When Keir Starmer entered Number 10 on 5 July, it soon became clear that a marked change in fiscal policy was on the way as the first Labour government in 14 years warned of the need to “fix the foundations” and fill a “£22bn black hole”. As it turned out, the chancellor introduced £40bn worth of tax rises in her Autumn Budget, the largest tax-raising Budget in over 30 years, weeks after putting an end to universal winter fuel payments for pensioners.

“Since the Autumn Budget, I've not had one meeting with a client where they've said, actually I can see why they've done that,” says Banasik. “It's caused a lot of frustration across the market, but also through individuals and clients from a personal perspective.

“Fortunately, the majority of my clients aren't in need of the winter fuel payment, but they still know how it affects others across the country and they are concerned about how the various increased taxes in the Budget will impact them and their family. If my clients who are fairly well off are worried about the effects of inflation and tax rises, imagine how people who don't have the type of assets we're dealing with must be feeling. It is a lot to think about.”

New year, new strategy?

The biggest news to shake the world of retirement planning in 2024 was the Autumn Budget announcement that pension pots and death benefits will no longer be excluded from estates for inheritance tax purposes from April 2027. With IHT and income tax combined, it means an additional rate taxpayer could face an effective tax rate of 67% on an inherited pension.

The unexpected announcement on 30 October accelerated a trend that was already gaining pace through 2023 and 2024 in light of higher interest rates: the reemergence of annuities. The historically prevalent form of retirement income all but disappeared in the era of rock bottom interest rates and new pension freedoms which followed the global finance crisis. But more attractive rates and, now, changes to IHT have driven a resurgence, especially for people who prefer the idea of a guaranteed income over navigating volatility in the markets.

“We've really started to see annuities come back into favour. It is quite an attractive thing to look at again due to the rates available,” says Banasik. “But rather than people going all in on annuities, I think what we’re more likely to see is a more blended approach of taking some income via annuity and some via drawdown in order to get the best of both worlds.

“2024 has been a year of real change and I think 2025 will be a time to digest those changes and how they should impact your retirement planning and legacy planning. There are still plenty of levers to pull to ensure you are maximising your financial future, including the likes of ISAs, VCTs, EIS and other reliefs. Some people might also find it beneficial to adjust their drawdown strategies and look at things like trusts to protect their legacy. As financial advisers we’re on hand to guide our clients through these complex discussions.”

If you’d like to discuss your retirement plan, speak to your financial adviser who will be able to help you plan for a successful financial future, or request a call back.