What does rising inflation mean for your savings?

It is a well-known fact that inflation is on the rise and will likely be around for some time to come. Households across the UK are feeling the effects of higher prices, with food, energy and fuel costs increasing dramatically. On 16 June 2022, the Bank of England’s Monetary Policy Committee (MPC) raised interest rates to 1.25% to help counteract rising inflation – however, this is still much lower than the rate of inflation which stands at around 9%, the highest rate for 40 years (with predictions that this will rise further). Due to this, there is a growing concern for those who have put money into savings. in our latest blog, we discuss what inflation could mean for the cash you’ve set aside and what you could do to reduce the impact.

The impact of inflation on your savings

The rate of inflation can impact your savings in many ways. In most cases, high inflation is a cause for concern as it could mean:

  1. Inflation affects the purchasing power of your money

If inflation grows at a higher rate than your savings, your money will lessen in value (you won’t be able to purchase as much as before).

For example:

If you have put aside £10,000 and the rate of inflation increases at a rate of 2.5% per year, in ten years’ time, the purchasing power of the money you have saved could drop to the equivalence of £7,812.

  1. Inflation may mean you are saving less in the short term

The cost of living has rapidly risen due to increasing prices – more and more people find themselves borrowing money and saving less to try and maintain their current lifestyle.

 

How to reduce the impact of rising inflation on your savings

There are a variety of things you can do to keep up with the rising rate of inflation – in some cases, you may even be able to help your money grow past the rate of inflation.

  1. Consider other investment options

If you want to beat inflation, you may want to consider putting your money into medium- or long-term investments (five years or more). Unlike savings, investments have more potential to grow over time.

At PM+M, we offer a bespoke managed portfolio service (in partnership with AJ Bell) which we continually monitor, conduct ongoing due diligence in funds held in the portfolio and proactively make fund and asset allocation changes when we feel as though this is necessary. You can find out more about our portfolio service here.

  1. Take advantage of tax breaks

Investments aren’t the only way you can protect your savings from losing value. Make use of any tax breaks that are available to make the most of your savings and investments.

ISAs are a popular and tax-efficient way of investing your cash in the long term –a £20,000 tax-free allowance per tax year is available to everyone and goes a long way to help you maintain the value of your money. There are four types of ISAs available:

  • Cash ISAs
  • Stocks and shares ISA
  • Innovative finance ISA
  • Lifetime ISA

You can invest in more than one type of ISA, but your maximum allowance will remain at £20,000 between all of your accounts.

Pension schemes are also a great tax-efficient way of making the most of your savings. Currently, you can obtain tax relief on a maximum of £40,000 (the annual allowance). However, your personal annual allowance could be less than this dependent upon earnings. The tax relief you receive is based on your taxable income and can vary – read more here.

Get in touch

The volatility of inflation means it can be more difficult to ensure the money you put aside is working as hard as it can for you and your future. If you would like to discuss your options, get in touch with our financial planning team (financialplanning@pmm.co.uk).

 

The value of investments can fall as well as rise. You may not get back what you invest. Past performance is not a reliable indicator of future performance.

 

 

A ROUNDUP OF OUR ‘NAVIGATING THE NOW AND NEXT’ EVENT – THURSDAY 31 MARCH

The fourteenth in the series of PM+M’s ‘Navigating the Now and Next’ virtual panel events took place on Thursday 31 March, facilitating discussion between a panel of speakers on the current challenges faced by businesses and highlighting support, guidance and best practice to navigate these going forwards.

Hosted by our very own Neil Welsh, with digital hosting managed by our friends at The Landmark in Burnley, we welcomed panellists:

Frazer Durris – CEO, Businesswise Solutions

Caroline James – Managing Director, Trevor Dawson Commercial Property Consultants

Paul Spencer – Partner, PM+M

Jenny Heyes – Head of People Projects, Napthens LLP

Following the opening introduction and welcome from Neil, Frazer Durris (Businesswise Solutions) kicked off proceedings by discussing something very apt in the current climate – rising energy prices.  Frazer explained how inflationary pressures, in particular the volatility caused by the Ukraine-Russia crisis, may cause a problem in the short term for the energy sector, but there is a positive takeaway in that the UK are now looking at more sustainable sources of energy which will hopefully reduce the reliance on volatile gas prices in the long term. Furthermore, the ongoing trend of more businesses placing sustainability and low-carbon at the forefront on their agenda has seen a rise in salary sacrifice schemes for electric vehicles and the installation of EV charging points and solar panels – something which we may see gain even more traction moving forward due to rising fuel prices. However, Frazer explained that there is an especially high demand for solar electricity panels at the moment – warning attendees of the current lead time of 30 weeks.

Caroline James (Trevor Dawson Commercial Property Consultants) steered the conversation towards trends in the property sector, describing how the Lancashire property market is holding reasonably well given the threat of inflation – partially due to the reliability of the industries and family businesses around East Lancashire (of which engineering is very successful) and overseas investment (mainly coming from Europe and America).

Caroline went on describe the problems she has encountered with the fast-increasing prices of property and land in the area, which could be detrimental in the long term. Commercial property prices have increased by about 30%-40% in the last two years and rent has seen an increase of 50% (from £4 per square ft. 3 years prior, to £6 per square ft.). Caroline described how a solution to this problem may be for businesses to look at greenbelt land or consider a merger with another business in the industry to ease the struggles of finding space.

Next up, Paul Spencer (PM+M) detailed his own experience of a merger, between Haworths Chartered Accountants and PM+M. Paul described the reasons why Haworths were looking to merge with another firm, including succession planning and struggles with recruitment, detailing how PM+M were the perfect fit as we share a client-focused approach. There was an assurance that clients could be handled more efficiently, due to the variety of services offered at PM+M, as well as the certainty that employees at Haworths now had a secure future.

Our final panellist, Jenny Heyes (Napthens LLP), discussed her role as the Head of People and Projects at Napthens, detailing how inflation is further increasing the challenges businesses are currently facing in terms of staff retention and recruitment, otherwise called the ‘great resignation’. Jenny suggested that problems could be alleviated through strategic workforce and succession planning – offering employees improved salaries is one option but opportunities for career growth, development and culture are also valued in the current climate with rising living costs and inflationary pressures.

Additionally, Jenny detailed how employee branding is becoming a significant factor in the recruitment field, where the focus is on the value-add, positive influence and corporate social responsibility of a business, and what this can offer potential employees when deciding on their next move.

Neil brought the panel discussion to a close and opened the floor to the audience, with additional comments and thoughts from Andy Platt (Simply Corporate), Azeem Khan (Gemini GRP) and Claire Rhodes (The Landmark), before thanking Claire for hosting the event.

If anyone would like to be introduced to members of the panel or audience, included in the invite for next month’s event or wish to speak to one of the PM+M team about our services, please get in touch with Neil Welsh via the button below.