A new year is a great incentive to review your financial position and plan ahead. Dust down your most recent portfolio, check if it performing as you expect and consider if you are maximising the available tax-efficient savings.
Check particularly that you have sufficient protection in the event of disability or premature death. This means critical illness and income protection insurance as well as term cover. Gain professional advice from an independent insurance broker and do not be afraid to ask about their experience and qualifications. The British Insurance Brokers’ Association can offer a number of names convenient to your home or work location.
For your investments, consider if you are receiving the best professional help. Whilst few would try to execute legal matters without a solicitor, so far more should use a stockbroker or wealth manager to guide on their finances.
The average household savings balance is now £48,906, according to Lloyds Bank. Ensure none is held in a low interest deposit account.
Have sufficient sums available for any emergency. This could be in a current account where a fair interest is paid, such as Nationwide (FlexDirect paying five per cent up to £2,500 for one year but then falls to one per cent), Santander (123 account paying three per cent from £3,000-20,000) and TSB (Classic Plus with five per cent on the initial £2,000).
Only Spanish-owned Santander has a fee which rises on January 11 from £2 to £5 monthly but also brings a cashback on direct debits at rates from one to three per cent.
Check that any holdings from a compensation point of view do not exceed £75,000 as the umbrella protection was cut by £10,000 to that level yesterday. If unsure, check the list provided by Moneyfacts which offers an excellent monthly update on cards, loans, mortgages, offshore accounts and savings (01603 476100).
Holdings using the same deposit-taking licence are amalgamated for the single sum rather than by each product or subsidiary. To ensure the sum is not exceeded, check:
Bank of Ireland includes AA Financial Services and Post Office Money
Bank of Scotland (part of Lloyds Banking Group) includes Aviva, Birmingham Midshires, BM Savings, Halifax, Intelligent Finance, Saga
Clydesdale Bank (part of National Australia Bank) includes Yorkshire Bank
Co-operative Bank includes Britannia and Smile
Santander includes Alliance & Leicester, Bradford & Bingley, Cahoot
Yorkshire Building Society includes Barnsley, Chelsea, Egg, Norwich & Peterborough
Few fully utilise their tax-efficient savings opportunities. See if you are on course to use the Individual Savings Account (ISA) limit of £15,240 this financial year which can be in cash, equities or any combination of the two.
Review your ISA and keep income holdings there but growth stocks outside. This means virtually no tax on the former (only the 10 per cent on dividends introduced by Labour) but the non-ISA element can be sold annually and tax avoided if profits are within the annual Capital Gains Tax allowance of £11,100.
Tax-exempt savings plans offered by friendly societies are frequently overlooked. Currently £25 monthly or £270 annually can be saved although the sums do not equate. Look at the underlying funds and where they are invested. Policies are usually written for a decade but can be for longer periods such as 18, 21 or even 25 years.
Whilst many such policies bring a small amount of life cover, returns are boosted if this element is removed. The current stars are Compass, Foresters, Sheffield Mutual and Wakefield-based Kingston Unity.
Make sure life protection policies are written in trust. Where an estate exceeds £325,000, failure to write a policy this way can cut a £100,000 payout by as much as £40,000. As a result, website unbiased.com calculates that a staggering £550m is being lost.
Use the pension allowance whilst the Treasury continues to make it available. If anyone is not employed, they can still contribute £2,880 which is topped up by the Government to make an annual £3,600 contribution.
If choosing a pension for future retirement, seek calculations as to the level of contribution required. If the plan is to retire at 65, someone who invests £10,000 at 40 would find it worth £33,864 assuming it generated five per cent annual growth but if delayed to 50 years, the sum would reach only £20,789.
Where recent allowances have not been maximised, it is possible to carry forward up to three years’ contributions. This means two years up to £50,000 each plus one year at £40,000 which can be combined with the current year’s allowance, thereby taking the total contribution to £180,000. This is provided there are earnings of at least this sum in the same year.
Ensure children use their full allowances. With a Junior ISA, anyone under 18 can save £4,080 unless they hold a Child Trust Fund (CTF). Whilst the account has to be opened by the parent or adult with legal responsibility for the child, anyone can contribute.
Review the performance of the CTF or Junior ISA. If it is deposit-based, transfer it immediately to an equity fund where it is likely long-term to enjoy a far enhanced return.
Remember, too, that even a baby can start a pension and contribute the same net premium of £2,880 as a non-working adult. This would make a great birthday present.
For married couples and civil partners, consider redistributing investments to maximise personal tax relief. Since April, the partner who has an unused allowance can transfer up to £1,060 to the other.
To reduce future inheritance tax liability, remember that up to £3,000 can be given away this tax year and, if not used in the previous one, can be carried over. Use the small gifts exemption, which allows up to £250 to be passed to as many as you wish each year provided it is not the same person who has the £3,000 sum.
Finally, check your credit card is working efficiently.
For those who pay off their balance monthly, use the fee-free American Express Cashback Everyday card which currently rebates five per cent on the initial £2,000 spend over three months.
After that, the card has a sliding scale of rebate, reaching 1.5 per cent above £7,000 expenditure.
If planning to use a credit card abroad, seek a fee-free one with no foreign usage loading which can save almost three per cent: Creation Everyday, Halifax Clarity, MBNA Everyday Plus, Nationwide Select, Post Office Platinum, Saga. Whilst all these have no charges worldwide, Metro’s MasterCard is free in Europe but charges 1.90 per cent elsewhere. If paying for a package, whether credit card or current account, evaluate if the benefits justify the charge.
Conal Gregory is Headline Money’s Personal Finance Regional Journalist of the Year.