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Millions see the New Year as the perfect time to take stock of their lives, careers, relationships, fitness – and finances.
Significant changes confirmed in the Autumn Budget have thrown many people’s financial plans up in the air, meaning it is vital to understand how to plan for security in later life.
Emma Sterland, Chief Financial Planning Director at leading UK wealth management firm Evelyn Partners, said: “Irrespective of evolving tax and other financial rules, our circumstances and needs also change constantly so it’s important to pause and take stock.”
She has identified 12 tips and ideas that will help people better understand and make the most of their finances for 2025.
“Some of these are “low-hanging fruit” that could be enacted or set in motion with an hour on the laptop, while some might involve more ongoing efforts. But they are all very do-able, practical steps that might make a good alternative to daunting New Year resolutions,” she said.
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Boost your pension
Emma said: “Pension saving is treated very generously by the UK’s tax system, which means you get to keep in some case all of your earned income by putting it into a pension, plus a further boost from employer contributions.
“As many people are not saving enough for retirement, if there is room in their budget or they can make room, then increasing pension contributions can be something of a financial no-brainer.
“Some employers offer pension contribution matching above the minimum levels, which are currently 5 percent from the employee and 3 percent from the employer. Individuals should consider taking advantage of such an offer which might mean that an employer would match higher employee contributions of say 8% of salary.”
She added: “You can also add to your pension with one-off lump sums – an inheritance for instance – as long as you are careful to abide by the annual allowance rules, which limit how much you can contribute to a pension in a tax year while receiving the tax relief.
“It is also around this time of year that many employees are asked how they would like their bonuses paid to them. Many firms offer the option of having a bonus sacrificed into the company pension, which means the full amount is paid into the workplace scheme, rather than losing a good chunk in income tax and National Insurance.
“Bonus sacrifice can be especially beneficial for those around the £100,000 annual salary mark as they will lose their annual allowance if earnings go above this level and could potentially be paying a marginal tax rate of more than 60 percent.”
Start saving for a child, grandchild or niece/nephew
Emma said: “Small amounts saved regularly over time can accumulate into quite substantial sums over many years thanks to the power of compound interest, or compound returns.
“So, the festive season is a good time to think about really lasting gifts that can create long-term By opening a Junior Individual Savings Account (JISA) for a young relative, with a relatively small monthly outlay, you could be giving them a real financial headstart in life. JISAs come with their own generous £9,000 annual allowance and does not eat into the adult’s annual ISA limit.”
If a family invested £100 a month in a Junior ISA, assuming an average annual 5 percent growth rate, the account would have just over £35,000 in it by the time the child turned 18.
With the maximum £750 a month contribution, the pot would be worth more than £263,000.
She added: “It is also possible to open and save into a pension for a child, where the potential growth is even greater because the contributions will benefit from tax relief at the basic rate of tax.”
With a gross annual pension allowance of £3,600 for the non-earner, a relative can invest up to £2,880 a year into a child’s Self-Invested Personal Pension (SIPP) from age zero, which is topped up by the Government with £720 in tax relief.
It is important to understand how to plan for security in later life (Image: Getty)
Check your pension is going to the right person
The Budget changes to inheritance tax (IHT) rules mean that from April 2027, if legislation goes ahead as expected, unspent pension pots will be Included in IHT liability calculations at death, unless the spousal exemption applies.
Emma said: “This major change is a reminder to check who receives your pension savings should you die, and this applies to personal pensions and SIPPs as well as occupational schemes. In workplace schemes this can often be a separate form to the nomination for death in service benefits.
“It is a quick and straightforward step to make sure you have filled in the nomination form in your workplace pension scheme and to check it if your circumstances have changed.
“Some people might currently have nominated one or more children as well as or instead of their spouse or civil partner. They might want to keep it this way, but should be aware that from April 2027 leaving this asset to a spouse or civil partner will probably be more tax-efficient.”
Review your financial strategy and don’t leave it too late to get advice
Emma said: “Research tells us that many people only turn to financial advice late in life by which time most crucial decisions around retirement saving, investments or pension access have already been made.
“Many middle-aged and older women only seek advice when their partner dies, leaving the survivor assets that they are just not sure what to do with. A surviving partner will often come to us to “sort out their financial affairs” in such a way that it will provide them with security and an income into old age.
“Ensuring a comfortable retirement is a lot easier if someone has a trusted adviser already, before these things happen. Not just because with a background of sound financial and investment advice the family’s assets would be in a better state of preparedness – whether that is getting your pension retirement-ready or a first death.
“But also, because a relationship of trust would have been established, so that the person feels comfortable later in life with the advice on their financial future. Suddenly entrusting a whole estate to a new adviser can be a difficult and fraught process for someone who is on the cusp of retirement or grieving and possibly elderly.
“So the message is: don’t leave advice too late if you think you might need it, even if it doesn’t seem like the most urgent thing right now.
“For those who aren’t advised, time can overtake even the most savvy among us. It’s entirely possible that your finances are currently in a great place – according to plans made a decade ago. Our circumstances and needs can change significantly and unexpectedly for all sorts of reasons – births, marriages, deaths, inheritances, career change, divorce, illness, the list goes on.
“It might be for instance that a couple who both earn decent incomes never bothered with life insurance because they – quite logically – deemed it unnecessary. But that could become a priority with the arrival of children or if one partner takes a back seat in the bread-winning stakes, or both.”
Use allowances efficiently to shelter from tax
Emma said: “In a higher tax environment, tax wrappers like ISAs and pensions become even more important, and as the end of the tax year approaches in April, individuals and couples should make sure they are making annual allowances work for them.
“Investments held outside a tax-protected wrapper are now vulnerable to a higher rate of capital gains tax, particularly so as the annual exemption is now just £3,000. The new higher rates of 18 percent for basic rate taxpayers, and 24 percent for higher and additional rate, apply already so many investors might be reluctant to realise big gains in a higher tax environment.
“But if there is a good investment case for taking some profit, investors can put some serious thought to using their annual CGT exemption in the next three months to realise some gains before the end of the tax year.
“For couples it is time to look at whether both sets of allowances are being used efficiently and whether – in the case of married couples – spousal exemptions can be used to remedy this situation by transferring investments, which could also allow the couple to take gains more tax efficiently.
“Likewise, one partner might have a higher personal savings allowance which means the couple could earn more interest tax-free if savings are held by the lower-rate taxpayer.”
Claim your higher or additional rate tax relief
Emma said: “It’s the tax return time of year, and most of those who are used to annual self-assessment will need no reminding of the January 31 deadline and the cost of missing it.
“But some of those not doing one might be unaware that they should be – or forgetting to include important information. This can be especially costly for higher and additional rate taxpayers who are owed pension tax relief. Research suggests that a third of higher-rate taxpayers every year could be missing out on an additional 20% tax relief on their pension contributions.
“Anyone paying into either a relief at source pension scheme or a self-invested personal pension will contribute sums out of net pay, after income tax has been deducted. Basic rate tax relief at 20 percent will be added automatically by the pension administrator – but if you have paid tax at the higher rate of 40 percent or additional rate of 45 percent you will then need to claim back the extra 20 percent or 25 percent from HMRC.
“A higher-rate taxpayer paying £50,000 into a private pension each year could potentially miss out on £12,500 due to the unclaimed pension tax relief, while that sum would be even higher for an additional rate taxpayer.
“This tax relief can be claimed on a tax return, but if you are PAYE and have no other reason to register for self-assessment, it is possible to write to HMRC with all the details of your contributions and the scheme you are paying into, in order to claim the extra tax relief.”
There were significant changes in the October budget (Image: Getty)
Start the financial conversation – for couples and the “sandwich generation”
Emma said: “So many financial problems and worries arise and grow because of a lack of communication, whether that is between partners or between parents and their children. The so-called “sandwich generation”, who in middle age have both parents who are dependent in some way and children at school or university, can find life particularly difficult if they don’t talk with their family about important financial issues.
“Many families find it easiest to do this with an outside expert. Those with both elderly parents and growing children have the most to gain from careful, generational financial planning as the potential gains from good advice around cash-flow, investments, wealth transfer and tax-efficiency are myriad.
“With couples, there does tend to be one who is more comfortable with managing the finances and that can work to an extent – partnership after all is partly about playing to each other’s strengths. But even if one person tends to take the lead it’s always best if both individuals have a decent grasp of the household finances and are at the very least engaged in the more important decisions.
“It’s up to both partners to make that happen as lack of financial communication can be as much about one person showing no interest as the other’s tendency to take control. This is especially important if one or both partners are elderly, when loss of health or certain capabilities – which could affect the financial reins-holder – is a potential issue.
“Women can often be the financially under-informed partner in many marriages and relationships, but anyone in this situation should remember that they might end up in a weaker state financially should anything go wrong. The more equally informed both parties are the easier and it will be to cope with a change in circumstances, and even a separation.”
Make or change your Will(s) and/or put in place LPAs
Emma said: ‘If you don’t have a Will then making one is often a huge step in establishing financial security and peace of mind for your family. It can prevent unnecessary stress and even disputes for the administrators and beneficiaries of an estate and could save them having to pay unnecessary inheritance bills.
“Having wills in place is especially crucial for unmarried couples in long-term relationships – as the intestacy rules could lead to an unwelcome distribution of assets at death – and for blended families where uncertainty and misunderstanding can arise. Where the family home is not jointly owned, that could also create issues at death and couples can consider how their property is owned at the same time as looking at Wills.
“Even where wills are in place, and especially if they were made some time ago, make sure that they still do what you want them to, and that new tax rules do not require a rethink.
“To take one example, after the changes to business relief and agricultural property relief in the Budget, for many families with businesses or farms the traditional mirror wills for married couples – where the couple leaves everything to one another and then to their children – might no longer be the best option to maximise the use of available IHT reliefs.
“It’s also a good time to reflect on articulating your wishes at a time of lost capacity and possibly arrange lasting power of attorney. You can register an LPA at any time and nominate one or more trusted persons, but you do not have to grant it until the need arises.”
Millions see the New Year as the perfect time to take stock (Image: Getty)
Check your tax-free cash pension allowance
The lump sum allowance – introduced from April 6, 2024 – provides all pension savers with the potential to draw up to £268,275 (assuming they had no Lifetime Allowance protection in place) from pensions tax free, less any previously withdrawn lump sums.
Emma said: “There is a calculation that is used for lump sums that were taken prior to April 5, 2024 and, if the tax-free cash previously withdrawn was less than 25 percent of the value crystallised, then this could mean that you might be entitled to more tax-free cash than you thought.
“This situation is more common for those who have already taken final salary pensions or purchased annuities. Care is however needed to ensure that you do not do something that could reduce the amount of lump sum allowance available to you, so please seek advice before doing anything as a good adviser can clarify the position for you and a simple solution is available to ensure you fully benefit from this new allowance.”
Is it time to start the seven-year clock ticking?
Emma said: “We have mentioned how fulfilling it can be to start saving for a young family member but gifting can also benefit the whole family by reducing a future IHT liability.
“So once you’ve recovered from Christmas generosity, the new year is a good time to give some thought to a longer-term gifting plan. Should you start the “seven-year clock” ticking on larger gifts? Do you want to gift your pension tax-free lump sum now that pension pots are due to come under the ambit of IHT by April 2027?
“Could you start making regular gifts using the ‘normal expenditure out of surplus income’ exemption? Could you use your own pension savings to start or boost the pension of a loved one, which would benefit from tax relief at their marginal rate?
“All these questions have been given extra urgency by the Budget changes to IHT rules and reliefs, and those who would currently benefit from the more generous business and agricultural property reliefs must have a big rethink with the help of an adviser whether their current plans are fit-for-purpose.”
Check your death benefit situation
Emma said: “While the IHT reforms at the Budget are still under consultation it does look like a number of death benefits paid out as part of pension plans will be subject to IHT.
“Many employers offer life assurance benefits as part of a workplace pension, in the form of a tax-free lump sum – often three to four times salary – paid to a person of your choice if you die while working for the company. This is obviously a crucial payout for loved ones should anyone die at an age when they are still employed, which would usually be a huge shock.
“At the moment such payments paid out by occupational pension schemes are not counted as part of an estate for IHT purposes, but under the new rules they probably would be. Although the IHT issue might only occur if you have nominated someone other than your spouse or civil partner, because of the spousal IHT exemption.
“So it is a wake-up call for everyone to check they have the correct person nominated for this benefit, and those concerned about the IHT implication of such a payout should check with their employer as to the type of death-in-service scheme they have in place.
“Newer types of “excepted” death in service benefits could mean that IHT is avoided on the payout in all cases and for most employers it is relatively straightforward to switch to such a scheme.”
Get your pensions together
Almost all employees are now enrolled in workplace pensions, and many are accumulating multiple pots. Research shows that the value of lost pension pots in the UK has risen by 60 percent since 2018, and that 3.3 million pension pots are now considered dormant or lost, at an average size of £9,470.
Emma said: “The new year is a good time to sit down and make sure you have all the details of your savings, and if not then call previous employers or providers, or failing that the Government pension tracing service, to get them together.
“This is the first step towards taking control of your retirement fund, and not just because it’s daft to let hard-earned money go missing. You also need to keep track of how much you have saved and where it is invested to have any idea whether you are saving enough for retirement.
“Consider also whether life would be easier and your investments easier to manage if you consolidated some or all of the pots. It’s possible to do this yourself but where you’re looking at larger sums this is really an area where advice can pay dividends, both around whether and how to consolidate and how to make your investments work harder in the future.
“For defined benefit pensions worth over £30,000, advice is in any case mandatory before they are transferred or cashed in, but even money-purchase schemes can have various rules and benefits attached that an adviser will spot.
“If you don’t take advice, then check that you are happy with how your pension savings are invested, and watch out especially for any lifestyling or target-date funds that your pension could be saved into, which might no longer be fit for purpose.”
