member

Rachel Reeves opted for the do-nothing approach, and given the impact on UK business of her previous two Budgets, this feels like a win for those of us who want to see growth. 

January tax receipts were considerably higher than forecast, likely due to increased business sales and shareholder remuneration, with business owners trying to beat the upcoming rises to income tax on dividends and Capital Gains Tax under the Business Asset Disposal Relief provisions.

This gives the Chancellor greater headroom, which hopefully can avoid her having to return for more tax rises in the Autumn Budget, even if she feels the need to indulge any further government spending plans.

Or, she may need that buffer to counter the unknown headwinds resulting from conflict in the Middle East, which has already seen an impact on stock markets, energy prices and the cost of government borrowing.  Mrs Reeves talked in the Statement about ‘charting a course through uncertainty’, and that is undoubtedly truer now than when she drafted her speech.

The growth forecast for 2026 was downgraded from 1.4% to 1.1%, which was not unexpected.  We are still seeing the impact on recruitment and business profitability of the Employer National Insurance increases and minimum wage rate rises announced in spring 2025; unemployment is forecast to increase further this year.  The silver lining is that the NI rise was a one-off and business have more certainty now, so can plan ahead to absorb these costs across another trading year.

Higher growth forecasts for 2027 onwards are welcome, but as with all longer-term predictions, what actually happens depends on many unknown factors, not least any new tax measures the Chancellor may be considering for her annual Budget in the Autumn, as well, of course, as geo-political events outside the UK’s control.

Predicted increases in GDP per person are good news; it would make even more of a difference to working people if we could see some relaxation of the personal allowance and higher rate income tax threshold in the autumn. Fiscal drag is now impacting so many people that even those on the basic state pension could be pulled into tax for the first time before long.

Local businesses are resilient and growth will come with certainty and consistency from government.  However, much capital is being held back in case of more surprise policies.  The constant speculation before last year’s Budget led to businesses suppressing investment decisions; unlocking this spending requires confidence that businesses can plan ahead positively.

Mrs Reeves boasted about measures which matter to working people such as rail fares, energy bills and fuel duty, but for us all to feel richer we need private business to grow and the tax burden to reduce.

For now at least, the do-nothing approach adopted this time around is a blessing.  When it comes to the Autumn Budget, I hope lessons have been learned and we see less meddling, less leaking – and more support for local and UK businesses.

After years during which a series of geopolitical shocks – Covid, Ukraine, President Trump’s tariff threat – have taken place, investors will have been hoping 2026 would bring a period of calm and stability in the markets.  Unfortunately, once again that hope seems forlorn.

Following weeks of anticipation and build-up, the US and Israel launched air strikes against Iran at the weekend, and the situation has now escalated, with Iran reacting by targeting many of its neighbours in the Middle East.

Unsurprisingly, this action has led to volatility in the markets.  Perhaps the most significant impact has been on the price of oil, with Iran controlling key supply routes including the Strait of Hormuz, through which flows around a fifth of the global oil trade.  As a result, equity markets have seen some large negative movements, including a nearly 3% drop in the FTSE share index on Monday (although it has already bounced back slightly).

Alongside this short-term reaction, increased oil prices could lead to higher inflation, with consequences for interest rates, government borrowing and bond and equity markets.

This kind of shorty-term volatility can be uncomfortable and unsettling for investors, but it’s crucial they don’t panic: investment decisions made on a knee-jerk basis are seldom the right ones.

Historically markets tend to overreact in the short term, but also recover swiftly.  Just 12 months after the start of the pandemic, while the disease was still in full flow throughout the world, many markets had returned to pre-Covid levels.  Similarly, markets tumbled when Russian tanks rolled into Ukraine; four years later, with that war rumbling on, markets are at record levels (until this week’s shock, that is).

The message to investors as we face another wave of market volatility is to keep a level head, and bear these three things in mind:

• Investing is considered a medium to long-term approach – generally five years and beyond.  During such a timescale, day-to-day volatility is pretty much a given.

• A diverse investment solution is of paramount importance in protecting investors against that volatility.

• Selling assets because of short-term movement in the markets is something to avoid, if possible; you could limit the longer-term growth potential.

That last point is particularly important: reactive selling following a big market fall both crystalises losses and removes the opportunity to benefit from any likely rebound – both of which will damage the long-term returns on a portfolio.

The other point to make is that often this kind of situation is already largely ‘priced-in’ to the market.  Certainly fund managers have been talking about the possibility of conflict in the Middle East for many months.

This latest economic shock comes at a time when the underlying UK and global economy is beginning to emerge from a long period of uncertainty, which hopefully will increase its ability to absorb the current instability.

The situation in the Middle East could resolve fairly quickly, or it could, like the war in Ukraine, rumble on.  Investors need to keep a calm head and not take any knee-jerk decisions that they may come to regret.

Before 2015, the route to securing retirement income was pretty simple: purchasing an annuity was compulsory before the age of 75.  But ‘Pension Freedom’ allowed savers to leave their pension pots invested and ‘draw down’ income as they needed it.  Given that this change happened in the wake of the 2008/9 financial crash, which meant that rates were at rock bottom, it’s not surprising that annuities fell out of favour.

But two factors have combined to make some people review that aversion to purchasing an annuity.

The first is that rates have bounced back considerably from their post-crash lows.  In 2014, a £100,000 pension pot would secure a level annuity at the age of 65 of as little as £4,500; today, even with interest rates once again on a downward trajectory, the figure is more like £7,700.

The second factor was the Budget announcement by Chancellor Rachel Reeves that unused pension pots will be brought within the scope of inheritance tax from April 2027.  Given that joint annuities are free from IHT on the first death, they thus become particularly attractive to couples who are not married.

The result of this has been an uptick in the take-up of annuities.  In 2024 the value of annuities sold was £7.4 billion, the largest figure since pension freedom was introduced in 2015.  The increase is especially marked when it comes to higher-value annuities: sales of plans worth more than £250,000 rose by almost a third, and of those worth more than £500,000 by more than 50%.

So if you are approaching retirement, or you have already retired but have left your pension pot invested for the time being, is now the time to consider an annuity?

The answer to that question is, as is often the case, very much dependent on your individual circumstances.  There is no ‘one size fits all’ answer.  But there are some pros and cons of annuities to take into account before making the decision.

The pros first: above all, an annuity gives you certainty.  Your income is guaranteed, not subject to the potential fluctuations of the market, and is there for your lifetime (and you partner’s if you choose a joint annuity).  You can choose an escalating annuity which provides a income which rises either by a set percentage or by the rate of inflation; you can also opt for an annuity guarantee (typically five or ten years) which means that it continues to pay out should you die during that period; bear in mind that both of these options will reduce the headline annuity rate.

And, as we have seen, joint annuities are free of inheritance tax on the first death, which can be beneficial to non-married couples.

However, there are some downsides. Once you purchase a lifetime annuity, the decision is made and if your needs change, you can’t undo it. 

It also can potentially die with you, so there may not be any unused pension pot to leave to your family.  In this respect, it is very much like a traditional defined benefit pension.

Increasingly, we are seeing a ‘mix and match’ approach, where pension-holders use part of their pot to buy an annuity to guarantee their basic income needs, but leave the rest of their pot invested to allow them flexibility in the additional income they draw down. 

Some who choose to retire before the state pension age are buying fixed-term annuities to plug that income gap until they receive that state pension.

The truth is that even with strong annuity rates, the investment growth available via the drawdown option can be even larger, so for those who do not need to guarantee their income, this can still be an attractive option.

Annuities are increasingly being considered as part of the retirement income mix.  It is a complex calculation, and one which should be undertaken with the benefit of expert advice.

A free, AI-powered follow along pitch workout. This could save you hours working out your best pitch for investors, new business, partners… or not! Have a play and tell me. 

Arthur from Pitch Gym