2025 in review: Financial planning lessons for a year of global shifts A financial adviser's perspective...

Closer to home, Labour’s first full calendar year in power was…eventful. The recent 2025 Autumn Budget avoided much-touted income tax hikes but hinted at future fiscal tightening.

Speculation around the Chancellor, Rachel Reeves, revisiting Capital Gains Tax (CGT), Inheritance Tax (IHT) and pension relief reforms dominated headlines, with a spike in enquiries from clients on whether they should withdraw their tax-free cash from their pensions ahead of the Budget. Fortunately, no significant changes to these were announced in the Budget, again highlighting the importance of not making financial decisions based on everything you read in the media.

Meanwhile, the Middle East saw continued agitation, with the Israeli-Palestinian conflict only reaching a fragile ceasefire in October.[3] The war in Ukraine continues meanwhile, now in its fourth year. Both conflicts have resulted in higher oil prices and adding inflationary pressure globally. In short, 2025 has not been one that will be remembered for its stability.

Monetary policy and inflation: The calm after the storm?

Following on from the above, the start of 2025 saw us enter the year with the Bank of England’s base rate set at 4.75%.[4] As inflation cooled over the course of the year, we saw several rate cuts, and the Bank of England’s Base Rate now currently sits at 4%.[5] Meanwhile, the Office for National Statistics has quoted that inflation remains somewhat sticky, at 3.8%[6]; almost double the UK Government’s target of 2%, reminding us that the fight against inflation is far from over.

For borrowers, this stability and reduction in borrowing costs has brought some relief. Meanwhile, for savers it has given pause for thought as to whether cash-based investments are a suitable medium to long term strategy. The challenge when using cash as an investment is to ensure that the rate of return being achieved stays above inflation. As a financial planner, I have had more conversations over the past year about the use of cash as an investment strategy within a client’s overall financial affairs. My response is always the same: it depends on what the objective is for the funds, when they are needed, and ensuring clients understand the long term outperformance of investing in other asset classes against cash.

It is important for both borrowers and savers to keep an eye on the interest rates they are being charged, or offered on their savings, as part of their overall financial plan.

Technology and the AI boom: Innovation or irrational exuberance?

If 2023 and 2024 were the years Artificial Intelligence (AI) entered the mainstream, then 2025 was the year that it dominated headlines and balance sheets. Capital spending on data centres to power AI models has driven a significant proportion of US economic growth this year, but the market mood is shifting.[7] After a period of simply stratospheric valuations and record highs for tech indices (and US indices) recent months have seen growing speculation that the “AI Bubble” could burst.[8] Why? Because the largest companies in the US have poured billions of dollars into AI research and development and are yet to show meaningful profits from these investments. Investors are starting to ask the hard questions: when will this eye-watering capital expenditure translate into cashflow for investors and the businesses themselves?

Our own positioning on this reflects caution. Whilst US equities make up roughly half of our global equity allocation, we have deliberately maintained less focus on AI-driven mega-cap tech stocks for almost two years. Our November Asset Allocation Update (Asset allocation update November 2025 : How we’re thinking about markets… | Saltus) notes “Going into 2026, the earnings and cash flow growth of these AI-driven behemoths will likely fall relative to the wider market, and investors are going to scrutinise the capital expenditure plans of these companies a lot more closely.” Simply put, the market sentiment is shifting from “hype” to accountability.

This does not mean abandoning innovation altogether, or indeed an exposure in client portfolios to tech stocks. We believe AI will continue to transform a myriad of industries, but the investment case now demands selectivity, caution and discipline. Our US equity exposure is well-diversified, complemented by tilts towards Emerging Markets and Japan, where valuations are lower and earnings growth forecasts are amongst the highest globally. These regions offer exposure to technology themes without the same bubble risk like AI, alongside structural tailwinds like a weaker dollar and corporate governance reforms.

From a financial planning perspective, what this means for my clients is:

• We should avoid chasing “thematic trends” without a clear link to long term goals
• We should continue to ensure that portfolios remain extremely well-diversified across geographies, sectors and asset classes to mitigate concentration risk
• For those clients with externally held portfolios, consider rebalancing to reduce exposure to potential volatility
• As always, we should keep liquidity and flexibility in mind. Should the AI bubble indeed pop, opportunities will emerge for those who have prepared to act

As always, everyone’s personal circumstances are unique. You should always seek financial advice before making any investment decisions.

Lifestyle pressures and behavioural shifts

One significant challenge that followed Labour’s 2024 Budget for many of my clients has been the introduction of VAT on private school fees. Our latest Wealth Index Report (September 2025) revealed that 19% of parents were in the process of removing their children from private schools as a result of VAT, whilst 71% have admitted to making sacrifices to keep their children enrolled – from cutting holidays to dipping into pensions.[9]

The same Wealth Index also highlights the scale of intergenerational support. 76% of high net worth individuals (HNWI) have supported their adult children, and 56% have helped ageing parents, creating a “sandwich generation” balancing family responsibilities with their own retirement goals.

Relocation is also on the radar for HNWIS. Up to 25% of HNWIs have considered leaving the UK, citing tax policy, education costs and lifestyle factors.⁹ The US tops the list of preferred destinations, with Canada and Australia following closely.

From a financial planning perspective, it is always worth stress-testing any changes in your personal and financial circumstances through cashflow planning with your adviser. Starting early with gifting strategies and general IHT planning has never been more appropriate.

The Financial Conduct Authority does not regulate Cashflow modelling.

The Financial Conduct Authority does not regulate Tax, Trust & Estate Planning.

Pensions and retirement planning: Act now, plan ahead

2025 has been a significant year for pension planning; not because of what changed, but because of what did not. The 2025 Autumn Budget stopped short of significant pension reforms, but speculation was rife in the run-up. That uncertainty drove a noticeable behavioural shift. Over the course of the year, more people were tempted to take their tax-free cash early to effectively “bank” what they feared they might lose if rules changed.[10] Whilst understandable, this reaction underscores the importance of balancing short term anxiety with long term strategy, and as always, underlines the importance of discussing your intentions in detail with a financial planner.

Regardless of the changes, pensions remain one of (if not the most) tax-efficient vehicles for wealth accumulation, offering income tax relief on contributions, tax-free growth and, for now, generous allowances. Utilising these allowances is important. The current annual allowance of £60,000, and the abolition of a lifetime allowance present a unique window of opportunity to build retirement wealth efficiently.

That being said, the landscape is changing. From April 2027, unused pension savings will fall inside the scope of Inheritance Tax (IHT), ending decades of pensions being a cornerstone of intergenerational wealth transfer.[11] This shift means that leaving large uncrystallised pots untouched may no longer be the optimal strategy. For many, the question is no longer simply, “how much should I contribute?”, but “how should I structure withdrawals and gifting to minimise tax across generations?” Whilst these changes have not been finalised yet and there is no need to make immediate changes, this may be a good time to discuss any concerns with your financial adviser.

Looking further ahead, salary sacrifice arrangements will lose their National Insurance advantage from April 2029 (for salary sacrifice contributions over £2,000), removing one of the most popular methods for boosting pension contributions tax-efficiently.[12] This change makes the case for maximising contributions under current rules even stronger. Acting now could preserve both tax-efficiency and peace of mind before these benefits face the cap.

From a financial planning perspective, the message is clear: do not delay contributions, and do not assume today’s rules will hold indefinitely. For clients with surplus income or liquidity, maximising pension funding before any further reforms is a prudent financial planning strategy. At the same time, clients should continue to stress-test retirement income plans against longevity, inflation and market volatility, taking into account their attitude to risk and capacity for loss. Pensions are not the be-all and end-all; clients need to ensure flexibility to adapt as legislation evolves. In short, pensions remain a powerful weapon in the financial planning arsenal – but the clock is ticking on their role as an IHT shelter and on  salary sacrifice advantages.

Top five planning priorities for 2026

To round things off, as each year does, 2026 offers a fresh opportunity to take control of your financial future. Against the backdrop of continued political uncertainty, evolving tax policy, and lifestyle pressures, here are five priorities that should be front of mind:

1. Maximise tax-efficient contributions early

With ever-present speculation around pension reform, using the current £60,000 annual allowance, and ISA limits early in the tax year is critical. If you have not utilised these allowances for the current (2025/26) tax year yet, discuss your options with your financial planner as early as possible. Similarly, salary sacrifice remains advantageous for now, but keep in mind that NI savings on salary sacrifice arrangements will largely end in April 2029, reducing its appeal. Acting now can lock in benefits before rules tighten.

2. Review estate planning and intergenerational wealth transfers

The shift to bring pensions into the scope of IHT changes the game significantly for legacy planning. With the changes set to be enacted in April 2027, we should receive the finalised version at some point in 2026. Once the government has finalised all changes to pensions reviewing your wills, trusts and beneficiary nominations on pensions, together with a detailed consideration of gifting strategies to reduce future tax exposure will be prudent. For those supporting multiple generations, this planning should balance generosity with personal financial security and stability.

3. Stress-testing retirement income plans

Volatility, inflation and legislative changes all mean that retirement plans need resilience. Modelling scenarios with your financial planner for drawdown versus purchasing annuities, phased withdrawals and the impact of early tax-free cash withdrawals should all be considered. As always, ensuring a degree of flexibility to adapt as reforms unfold is of paramount importance.

4. Reassess education funding strategies

VAT on private school fees has already disrupted plans for many families. If private education remains a priority, revisit cashflow models and explore tax-efficient funding options, such as Junior ISAs (JISAs) and trusts to maintain long term affordability, without compromising your own personal financial requirements and goals.

5. Continue to build liquidity and options

Global uncertainty – from an erratic and frankly less amicable US Government to tech bubbles – reinforces the need for accessible capital. Clients should consider maintaining a balance between invested assets and liquid reserves (cash) to seize upon investment opportunities, but also to cushion against shocks. Liquidity is not idle cash; it is strategic flexibility, and in a landscape where interest rates are higher than they were even five years ago, there remains a good case for keeping cash in reserve.

2025 has served as a sharp reminder that the only constant in financial planning is change. But with change comes opportunity for those who plan ahead. Your financial plan should evolve as your circumstances and the world around you changes. Start 2026 with clarity and confidence. As always, we are here to help.