This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in October 2023?

In November 2023, the UK government unveiled its Autumn Statement, outlining its plans for the nation’s financial future. In his address to Parliament, the Chancellor; Jeremy Hunt, acknowledged the challenges posed by the current economic climate.

When it came to pensions, the spotlight was firmly on the triple lock policy. The triple lock is a rule that ties the increase in the State Pension to the highest of:

• inflation;
• average earnings growth; or
• 2.5%.

Critics, including The Organisation for Economic Co-operation and Development, had been worried that the triple lock was too expensive and that the government should reconsider its approach. But, the government decided to keep the triple lock in place, meaning that the new State Pension will increase by 8.5% in April 2024.

From a new ‘pension pot for life’ concept to boosting the new State Pension, there were many policy changes announced. Keep reading to learn what the 2023 Autumn Statement means for the future of pensions, but first find out how markets have performed this month.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index rose by almost 7% in November. This brings the year-to-date performance close to -3%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by almost 8% in November. This brings the year-to-date performance close to +16%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by almost 9% in November. This brings the year-to-date performance close to +^{_corporation_tax_small_profits}.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index remained flat in November. This brings the year-to-date performance close to -14%.

Source: BBC Market Data

What impact will the 2023 Autumn Statement have?

There are two key areas the Chancellor targeted in his Autumn Statement: National Insurance and pensions. Here’s a summary of those incoming changes.

How are pensions changing?

• The triple lock on the State Pension will be maintained for 2024, resulting in a full new State Pension of £11,502.40. In a move that will bring relief to millions of pensioners, the government has confirmed that the triple lock will be maintained for the 2024/25 tax year. Concerns had been raised that the government might consider modifying the triple lock, given the recent decline in inflation to 4.6% in October 2023.
• A single pension pot for life is in the works. In a bid to streamline the complex pension landscape, the government is exploring the concept of ‘one pension pot for life’. This initiative aims to address the issue of individuals accumulating multiple workplace pensions throughout their careers. Under the proposed scheme, employees would have the freedom to choose where their Auto-Enrolment pension contributions are directed in each new job.
• Plans to tax inherited pensions have been abandoned. In a significant policy shift, the government has decided to abandon its proposed tax on inherited pensions - a move that will bring relief to many families across the UK. The planned tax, which was due to take effect in April 2024, would have subjected inherited pensions to income tax if the deceased passed away before reaching the age of 75.

How is National Insurance changing?

On the tax front, the Chancellor announced a reduction in the main rate of National Insurance contributions, providing a much-needed boost to take-home pay for many employees and self-employed individuals.

• Abolishing Class 2 National Insurance: Self-employed individuals earning more than £12,570 currently pay a flat-rate compulsory charge of £3.45 per week through Class 2 National Insurance. This charge will be eliminated from April 2024, resulting in annual savings of £179.40 for self-employed people.
• Reducing Class 4 National Insurance rate: The Class 4 National Insurance contribution rate for earnings between £12,570 and £50,270 will be reduced from 9% to 8% from April 2024. This translates to potential savings of up to £377 per year for self-employed people.
• Slashing Class 1 Employee National Insurance rate: Employees will witness a drop in their Class 1 National Insurance rate from 12% to 1^{_personal_allowance_rate} on earnings between £12,570 and £50,270, effective January 2024. This translates to annual savings of £449 for individuals earning an average salary of £35,000, and savings of up to £754 for those earning £50,270 or more.

In a significant boost for workers across the UK, the minimum wage rate is set to increase by almost 1^{_personal_allowance_rate} from the current £10.42 to £11.44 from April 2024. This welcome change will not only enhance take-home pay but also contribute to long-term financial security through increased pension contributions via Auto-Enrolment.

In summary

The Autumn Statement brought positive changes for workers and pensioners, including reduced National Insurance contributions, a higher State Pension, and a plan for a single pension pot for life. But whether these changes will endure remains uncertain due to the upcoming General Election expected in 2024.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in December 2023?

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 23 or scroll on to read the conversation.

PHILIPPA: Welcome to the final Pension Confident Podcast of 2023. To round off the year, we’re going to talk about something we’ve all done - made a financial decision that we’ve later regretted.

Christmas is nearly here and, as we all know, this is the time when it can be, oh, so easy to go overboard on spending, which is great until your bank statement or credit card bill shows up in January. And that’s what got us thinking about financial mistakes. We all make them - little ones like lending a friend a tenner and knowing you’re never going to see it again. Or for some, a really huge, long-lasting mistake, like spending all your savings on a property only to realise it’ll never be the dream home you thought it would be.

Now, even money experts can screw up every now and again. The good news is we can all learn from our mistakes. The more we know about financial pitfalls, the better equipped we’ll be to avoid making more mistakes. And speaking of experts, we have three in the studio to talk us through some of their own money mishaps and what they learned from them. First, let’s welcome back Mrs MummyPenny; Lynn Beattie. Nice to see you, Lynn.

LYNN: Thank you for having me again.

PHILIPPA: Founder of financial literacy platform, All Things Money; Ola Majekodunmi is here with us too. Welcome, Ola.

OLA: Hello, thank you for having me as well.

PHILIPPA: And joining us again, podcast regular and PensionBee’s CMO; Jasper Martens. Hello Jasper.

JASPER: I’m back again!

PHILIPPA: Now, as I always say before we start - please remember that anything discussed on this podcast should not be regarded as financial advice or legal advice. When investing your capital is at risk.

Now, just to prove that everyone trips up over money at least once, we asked the lovely people at PensionBee to confess to their most embarrassing mistakes when it came to money. The things they did before they learned better. Here they are.

Pre-recorded clip starts

BROOKE: I bought clothes from a fake website and they just never arrived.

DANI: I was paying off a credit card for years and being charged interest before realising I could just transfer the balance to a 0% deal.

DAVID: I bought a second-hand car without doing any research and then found out there was loads wrong with it, and so had to spend hundreds of pounds getting it repaired.

FRANCESCA: When my partner lost his job, we didn’t apply for financial support because we knew our landlord would find out and we panicked. We now regret not talking to someone who could help.

RACHAEL: I cashed out two small workplace pensions in my early 20s and now that I’m older, I’m really kicking myself that I didn’t just leave them invested.

TOM: I used to be really bad with streaming subscriptions. I’d sign up for a free trial because I wanted to watch something in particular but would then forget to cancel it, and then the costs would really add up.

Pre-recorded clip ends

SPENDING MISTAKES

PHILIPPA: All sorts of mistakes there. A big thank you to everyone who was brave enough to share theirs with us. With Christmas around the corner, it can be tempting to overspend. Have you ever got finances really wrong around Christmas? I certainly did when I was younger.

OLA: Yeah, I’d definitely say spending and spending without a budget, because without a budget you can easily spend so much more money than you originally planned.

PHILIPPA: It’s that thing, isn’t it? Christmas, Christmas, Christmas! Because it’s a big event, you feel like you have to go big. But it’s not the only one, is it? Because there’s all sorts of occasions where you feel quite a lot of social pressure to spend. Things like attending weddings…

JASPER: I was invited to a really nice wedding in Italy.

PHILIPPA: And were they offering to pay?

JASPER: Well, unpopular opinion, but they’re no longer friends. Because I don’t believe that friends who invite you to those weddings are who you should have as friends!

PHILIPPA: It’s hard, isn’t it? Because there’s that social pressure, particularly with friends. You feel like you’re being really mean if you don’t spend the money. I’m thinking about things like children’s birthdays as well. If you have kids, like I do, you feel that pressure to spend. And when you see other people are spending big on their kids’ parties, you think maybe you should be doing this too.

LYNN: Yeah, I think the comparison of what other people do is really tough. I’ve got three boys and they’re getting a bit older, and presents seem to get more expensive as they get older. What I find is, I might buy a couple of things and say, ‘oh, I’m going to buy another thing and then another thing’, and then suddenly you’ve blown the budget - if there even was a budget.

PHILIPPA: And did they really need that much stuff? I’m thinking about shopping more generally and it seems to me that half the trouble is that it’s so easy to shop now. There’s a real danger of stacking up debt with over-shopping, isn’t there? I mean, Lynn, you’ve spoken so openly about your problems with debt in the past. We talked to you about it in episode 10. Remind people who haven’t heard your story because it’s such a useful thing to hear.

LYNN: So, I got myself into quite a lot of trouble, it was almost like ‘keeping up with the Joneses’. I wanted to go on that holiday, I wanted that handbag, I wanted those clothes because I was caught up in what my friends were doing and what my colleagues were doing. I spent, and spent, and spent! The problem with that was I’d finished a job, set up my own company; Mrs MummyPenny and my income just didn’t match. It went right down, but I was still spending the same. So then, I suddenly racked up £16,000 worth of debt, which pains me to say. And it literally was because I wanted to go to Las Vegas on holiday. I think, ‘why were those thoughts going through my head? Why did I have to do that?’.

PHILIPPA: And maybe those friends who are going to Las Vegas on holiday are earning a lot more than you? That’s the thing - we measure ourselves against everyone we know, but we’re earning different amounts of money, aren’t we?

JASPER: I sometimes compare shopping and purchasing to almost like a cigarette addiction. Once you start smoking, you keep on smoking because you really enjoy it, right? But we know it’s actually bad for us. There’s so many similarities to an addiction.

PHILIPPA: And of course, let’s be honest about it - that’s what retail is for. They want you to do that. The whole industry is about you making that impulse purchase and buying that second thing, particularly online. I’m a massive online shopper. The click and into the basket, it’s just the work of a moment, isn’t it? And then before you know it, you press ‘buy’ and you haven’t really looked at the total.

OLA: I think now, shopping online and in person has become so frictionless. You don’t have to get your cash out. I was even doing a shop the other day and I could just pay on my phone through Apple Pay. So you don’t even have to think about using cash, card, PayPal or anything else.

PHILIPPA: Apple Pay - that’s one to watch!

OLA: It’s the weakness, isn’t it?

PHILIPPA: Without wishing to denigrate Apple Pay, the risk is there. It’s just literally a tap and you’re done.

JASPER: A wine retailer, which I won’t name in this episode, did send me a voucher last week to get £20 off my Christmas shop if I spent £150 or more on my wine purchase. Do you see what’s happening there? So I went to the website and I filled up my basket, but I decided not to click ‘buy’ yet. I paused it for at least a day. Especially when it’s over £100, I kind of feel I need to just think about this. Usually I’ll cool off the next day.

OLA: I think the most important lesson to take away from these sales is that it was never a sale or bargain if you were never planning on buying it in the first place.

PHILIPPA: This is so true. But before we get to that, I need to ask Lynn, how did you pay that debt off?

LYNN: I basically stopped my life for two years, which was really, really hard.

PHILIPPA: So what sort of things are we talking about?

LYNN: I didn’t buy any clothes, I didn’t buy any makeup, and I love makeup! I had to have the conversation with my children, which was really, really hard, which I know a lot of people shy away from.

PHILIPPA: How old were they at this point?

LYNN: 11, nine and six.

PHILIPPA: Kind of old enough to understand?

LYNN: Old enough, and I’ve always been open and honest with my children about money. I said something like, ‘at the moment, mummy has some debt and I have to work on paying it off. So it’s going to mean that we’re not going to be able to go on holidays’. I had things like ‘no spend months’ which were really quite difficult. It was short-term pain for long-term gain.

PHILIPPA: How long did it take?

LYNN: It took two years to pay it off. I’ll never get into that position again.

PHILIPPA: A good lesson for your kids too?

LYNN: Exactly.

PHILIPPA: Back to tips before we move on. Thinking about putting stuff in your basket and not clicking ‘buy’ is a really, really good one. And the thing you said, Ola, about a sale not really being a sale - I always worry about things like Black Friday. I know there are really great bargains to be had, but it draws you into buying stuff that you didn’t have in mind to buy at all.

JASPER: From working in marketing, I also know from quite a lot of other brands, how that whole process works behind the scenes. A Black Friday deal, in the vast majority of cases, isn’t a deal. It’s been priced at that particular price point, it then was bumped up in price, probably in August or September, and then suddenly it’s Black Friday. We’re all falling for it too, every year. But in the vast majority of cases, that product has been on the shelves at that price for, probably, quite a long time.

LYNN: There’s a couple of websites where you can check. So, say if you’re specifically looking for an item, let’s say a Shark vacuum, you can put the details of that product into the website. There’s either Camelcamelcamel or Idealo. You pop in the product details and it’ll give you the pricing history. So you’ll know exactly what’s happened to the price.

JASPER: Marketeers will be caught out!

LYNN: Yeah, they’re really useful websites and apps.

PHILIPPA: What do we think about sales generally? Is that the same?

OLA: I think it’s about - what do you want to buy? And what are you buying for? It’s so easy to shop in the sales just because something’s on sale. I think going into the new year, what do you want to purchase? Is there anything that you’re looking for in particular? For me, I always look at if there’s any deals on flights and things like that. Whereas when it comes to clothes, clothes are on sale all year round.

PHILIPPA: OK, so we’re resisting that emotional boost of buying.

LYNN: Is it worth touching on emotional spending though? Because that’s something that I’ve really struggled with my whole life. When you’re feeling sad, or feeling happy, or feeling angry, my ‘go to’ position has been to spend some money on something. Whether it’s lipstick or an item of clothing. This is what I’m trying to do now - I’m trying to be more mindful about it, to maybe go out for a walk, or go for a run, or go to the gym, or stroke the dog or the cat. Just do something that takes your mind off that immediate dopamine reaction of, ‘I have to buy something’.

PHILIPPA: Yeah, distraction. Don’t give into the marketeers like Jasper!

OLA: And I think it’s interesting, like you said, Lynn, I think it’s also important to identify what your triggers are. So what has triggered you to make you feel sad, or what has made you feel so low in the moment that you feel the need to shop. I have to talk about this with my clients a lot and sometimes it’s about setting barriers in place, like deleting all the shopping apps off your phone and unsubscribing from the mailing list of your favourite retailer. The emails are what catch you out saying things like, ‘Ola, I hope you’re having a lovely week. Here’s 20% off’. And I’m thinking, ‘a treat on my Wednesday? I didn’t know I deserved that!’. It’s things like that. So, put those barriers in place to hopefully curb that impulse spending.

FINANCIAL APATHY

PHILIPPA: Disable Apple Pay or similar app, temporarily, if you need to. But sometimes it does seem to me that our biggest mistakes can be just not paying enough attention to our finances, because we’re busy, aren’t we? We prioritise other stuff. If we’re honest, if our money situation’s not where it should be, we can avoid it as well, can’t we? You don’t want to look because you’re not gonna like what you see.

You’re all well-organised financial professionals, but I’m wondering whether you’re aware of anything, right now, in your lives, that you haven’t got your eye across? Where you kind of know it’s costing you more than it should be? Because I’ve definitely got one. I know that I should’ve changed my utility supplier, but I haven’t done it yet.

JASPER: I’ve got some leakage in my bank accounts. So, we’re talking about monthly subscriptions and stuff. I’ve subscribed to a nice wireframe solution for work. It’s actually a piece of work software. It’s £9.99 per month. I actually should expense it through work, but it’s coming out of my personal account because I used my personal card when I signed up. Every month it just says, ‘hello £9.99’. I’ve got a few of those and actually, maybe I should do that this afternoon. If I actually took control, it probably would save me £40 to £50 each month. That’s quite a lot of money!

OLA: Yeah, it is. I’m embarrassed to admit this, but I signed up to a language learning app earlier this year to learn a new language for my trip. I signed up for the free subscription and completely forgot to cancel it, and it’s cost me £60 for the year.

PHILIPPA: I do that with newspapers. I’ll sign up for three months free, then forget. But, I’ve learned my lesson and what I do is put a calendar reminder in.

OLA: I’m always so good at that but this time around I just completely forgot.

LYNN: So, say you’ve got maybe four or five subscriptions that you could do without, that you could cancel. So maybe that’s something like £40 per month. That’s nearly £500 per year. If you just spent half an hour going through your subscriptions and cancelling those four or five, I know it’s a hassle to do it, but it’s a few clicks. £500 - when are you ever going to get paid £500 for half an hour’s worth of work?

PHILIPPA: It’s time, isn’t it? Thinking about things like auto-renewals, insurance or utility payments. We all know we should be shopping around, but that’s not an instant thing to do, is it? You sit down, you get the thing saying it’s going to auto-renew next month and you think, ‘yeah, I must shop around to see if there’s something better’.

JASPER: You pay for the ease. Hopefully my old employer isn’t listening, but I used to work for an insurance company, although I wasn’t involved in the insurance part. With auto-renewal on insurance premiums, as a customer, you’re paying more. And the insurers know that. So swapping every year, when the renewal comes up, is a good idea. And there are many comparison websites where you can do that. They’re more than happy to welcome you with open arms. What happens with insurance also happens with mobile phones. Simply texting your current mobile phone provider and saying, ‘can I get my PAC code?’, that basically means, ‘I’m leaving. I want to take my mobile number with me’. Alarm bells will go off for the provider, they’ll give you a call and your renewal will probably be half the price.

PHILIPPA: I’ve learnt to negotiate. I didn’t used to do that. So when they send you your renewal, you’ve shopped around and think, ‘actually that’s probably a lower price than everywhere else’ - I’ll still get on the phone to them and say, ‘well, you know, I think I can do better than this’. They always take a bit of money off.

OLA: They always find a ‘special little deal’ for you!

PHILIPPA: They do. And then there’s things that we don’t even think about, like our bank accounts. No one ever changes their bank account…

OLA: Oh, I do! I love a change.

PHILIPPA: But most people don’t, do they? We stick with them life-long, even though the market is much more diverse and sophisticated now. I know, because you’ve told me before Jasper, you’ve got a savings account story, haven’t you?

JASPER: Yeah, you’re absolutely right. People don’t change bank accounts. We also see that people are reluctant to change pension providers. It’s just such a thing, isn’t it? You want to think twice before you do it. In terms of savings accounts, I opened up, a few years ago, an account with Marcus for the interest rate. Lots of people did. But, what usually happens with savings accounts is, over time, those interest rates might not be as appealing.

Just looking around and shopping for if you can get a little bit more, especially now with inflation being high, your money can become worth less. So you want to make sure you get some interest on it. So, I’ve moved mine to a Monzo account now. I bank with Monzo, so it was very convenient for me to move it from Marcus to Monzo. Nationwide now has a really good deal - I mean, you do need to shop around. Do you have to change it every single month? No.

PHILIPPA: I was gonna say, how often?

JASPER: I’d say a few times a year. Like you said, it takes up about an hour of your time.

OLA: If that! You log into a comparison website, tell them what you’re looking for and within five seconds there’s already options. Then it’s as simple as making a transfer. It’s so easy these days.

JASPER: You’ve got to just invest that time, even if it’s an hour each quarter of the year. I know you like changing bank accounts, Lynn. You’ve told me about it in the past. There are some really great welcome bonuses available.

LYNN: I was always thinking, ‘oh, I don’t think this is going to work’. So, I’ve been trying this in the last year and I hate to admit it, but I’ve switched my main account three times now, but I’ve got £200 each time I’ve transferred! The cash bonuses now, for swapping your bank account, are really quite generous, and they do all the switching of the Direct Debits for you, and nothing’s ever gone wrong. So why would you not do it?

JASPER: It’s the seven day switch guarantee.

PHILIPPA: That’s solid, is it? Because I’ve got to say, that’s the thing that in my head stands in the way. I’m thinking, ‘do I believe them when they say that all my payments will be moved on? Will they all be there and will it all work?’. Does it work?

LYNN: It does work.

JASPER: It does. My salary was also paid into my new account. That’s always my biggest fear.

OLA: Especially if you’re feeling the pinch towards Christmas - I think there’s no better time than now to switch, especially if you need an extra £200. I felt the pinch in the summer when I was going on a holiday to Ibiza and I thought, ‘oh Ola, how are you gonna get any spending money?’. So I switched and got £200 just before I flew.

PHILIPPA: So, how much bother is it to close down your old account?

OLA: You don’t do anything.

JASPER: It literally takes you five minutes.

OLA: They do it all for you.

JASPER: I remember when I switched from HSBC to Monzo, I think it took me five minutes on the Monzo app. You do it with the new provider.

PHILIPPA: I’m thinking about accounts, but it’s also what you’re saving or what you’re investing, isn’t it? You mentioned pensions and I’m thinking about savings accounts as well. It’s not just where it is, it’s how much I’m putting into it. Particularly with pensions, I really do think that people feel, ‘I’ve got one. It’s all good. I never need to think about it again until I need the money’, but you should keep your eye on it, shouldn’t you? And thinking, ‘can I put a bit more in? Is it working for me?’.

JASPER: Times are tough. So I’m not here today to say, ‘thou shalt put as much money in your pension as possible’, especially when we’re all feeling the cost of living, when people are feeling the pinch. I think there’s a couple of things you ought to be looking at. We’ve talked about this in previous episodes - lots of people have tiny pots everywhere. If you don’t know where they are, or you know where they are, but don’t know exactly how much is in them, it’s probably a good idea to get them in one place, for sure. At least you’ll know how much you’ve got.

Older pensions can be quite expensive as well. It’s not always talked about, but, I’ll call them ‘legacy providers’ aka ‘steam-powered pension policies’, can be quite expensive. And actually, just moving them to a new home might save you money on the management fee.

PHILIPPA: It’s knowing what you’ve got, isn’t it? Whatever it is, I think it’s understanding how much you’ve got. You’ve probably done research on this, but if you were to ask people who do have pensions, ‘do you have any idea what’s going on with your pension right now, or even, how much you’re putting into it?’, they won’t know, will they?

JASPER: The vast majority don’t. They don’t know how much their employer pays into their pension. If you ask them, ‘how much are you charged for your pension plan?’, most people don’t know.

PHILIPPA: I know this is a subject close to Lynn’s heart, because you were a bit of a late starter on the pension front, weren’t you?

LYNN: Yeah, it’s my biggest financial regret, because I didn’t put any money at all into my pension in my 20s. Nobody took the time to explain it to me. So I thought, ‘that’s too far down the line’. I actually stopped my contributions, and it was to a defined benefit pension from my employer. If I worked out how much that was worth - it’s potentially six figures! So I had to start from scratch at the age of 30 and I’m paying for it now, because I’m having to put bigger chunks of money into my pension.

JASPER: When I joined PensionBee I didn’t know a pension cost money. I work in the pensions industry and I had no idea I was charged a fee on my pension. I thought my boss was paying for it.

OLA: Most people wouldn’t know, would they? Where’s that rule book that says this is how much you’re paying towards your pension and how much it costs you? That’s why platform fees are so important, especially when you’re looking at switching up your pension.

JASPER: So, be in the know.

BIG FINANCIAL MISTAKES

PHILIPPA: Should we move onto the really big financial mistakes now? We’ve talked about stuff that matters, but I’m thinking about the really painful ones that can affect you for years. Mind you, having said that Lynn, what you’ve said about your pension, that was a long-term mistake, wasn’t it? In the sense that you’re having to pay for it now.

LYNN: In terms of actual money, that’s probably my biggest financial mistake. But I’ve made plenty of others! So we can talk about them.

PHILIPPA: I love the honesty in the room. The end of year honesty in the room! Can we all remember our first big purchase we made? Did it all go smoothly? Did it go well?

OLA: Well, I can’t think of my biggest purchase, but the biggest that went badly. Last year, I did invest in a designer handbag and that designer brand got cancelled literally a week or two after I bought it. So I haven’t yet taken it out of the house.

LYNN: What do you mean it got cancelled?

OLA: Oh, it got slated and I’m not even going to mention the brand. They got cancelled and I think a lot of people who understood the scandal know exactly what I’m talking about. And yeah, it’s yet to leave the house.

LYNN: Interesting story about designer handbags, I’ll do it quickly. I spent an uncomfortable amount of money on a designer handbag last year. It was an emotional, impulse purchase. It’s a really difficult thing to get in control of. I’ll open up - it’s something I struggle with. So, I bought this handbag, I took it home, I showed my kids and my eldest son said to me, ‘that’s like a third of a holiday’. And just that one sentence made me take that bag back and I got my money back.

PHILIPPA: You see, I’m listening to you two talk about ‘investing’ in designer handbags and I’m sorry, I’m gonna say it, because we made a podcast recently about how women are much less likely to invest than men. We dug into the reasons why that was, it was all very interesting. But there are these big decisions that people make when they’re quite young. I’m thinking about university here actually, that’s a big investment, isn’t it? You don’t necessarily think about it that way when you go, take the loans and rack up all that debt. But that’s something to think about, isn’t it? Because there’s so many other routes of entry now, into all sorts of careers.

OLA: I agree. I honestly wouldn’t have gone to university had I felt well equipped to take another route.

PHILIPPA: Really?

OLA: Yeah. I really wanted to do something like an internship or an apprenticeship. But my school really did put a big emphasis on supporting people going to university rather than those going down the apprenticeship route. So if I wanted to do an apprenticeship, I had to find it myself. I had to actually understand what that was and I didn’t know.

PHILIPPA: That’s a big ask at that age.

OLA: Massive, especially now that I look at my sister who’s that age. I think, ‘wow, that is so young’. At the time, the only apprenticeships I came across were in finance. It’s funny, I definitely didn’t want to go down the route of finance at the time. I don’t have regrets about university now, but I am in £65,000 worth of debt, plus interest.

PHILIPPA: It’s a big debt, isn’t it? Thinking about sizable errors - property is the one that’s come to my mind now. Renting and buying. Thoughts on common mistakes there?

LYNN: I don’t think I’ve ever been in a position where I’ve made a really sensible property decision. The first house I bought, I did so when the market was at a high. Then when I sold it, the market was at a low. So I made about £10,000 profit on a property that I owned for five years. The next property I bought was with my husband. Then I got divorced. So then I had to increase my mortgage proportionately to buy him out. So I feel like I don’t have much equity to my name because I just haven’t made the right decisions about property. I’m 46 and I speak to some people in their 40s that are mortgage-free. I can’t get my head around how you can be mortgage-free when I’ve got a £300,000 mortgage left to pay and I’m 46!

PHILIPPA: Sometimes you have to sell when you have to sell, and you have to buy when you have to buy, don’t you? There isn’t always the opportunity to be completely rational.

OLA: I think this is why buying is such a hard topic because being a 26-year-old, all of my friends’ goals in life are to buy a property. I think it’s fueled more by peer pressure and societal pressures that make you feel like you have to buy, when really it actually might not be the best decision to make right now.

JASPER: A house is to live in and many people make the assumption that their house is going to be their pension, or it’s going to be ‘the’ investment they’re going to make. Like you said, Lynn, most people will have a really big mortgage attached to it, to actually purchase that property. It’s not actually yours, it’s the bank’s. I’d say with property, one of the biggest mistakes you can make is that you see it as ‘the’ investment. Well, actually there are other investments in life too, like an investment account or a pension. And then also very practically, within the house - I’m a homeowner. Don’t invest in a very fancy bathroom or a very fancy kitchen that’ll go out of fashion in two or three years. Some things that are a bit more timeless are more practical.

LYNN: Have you done that Jasper?

JASPER: Yes, I have!

PHILIPPA: We’re running out of time, but I think it’s interesting Lynn, when you talked about marriage and divorce and the costs that can involve - you having to up your mortgage. I’ve been there myself. All these things can get very, very expensive. What I took from that, and I don’t know what you all think about this, is the importance of having really good financial conversations with anyone you’re financially connected to. Whether it’s a husband, a flatmate, a friend, a family member.

LYNN: I think from the moment you know that, particularly a relationship, is getting serious, you have to have that financial conversation. And almost ‘marry up’ your money mindsets. I was married to a spender and I was a spender - that’s a really dangerous combination. Don’t be afraid to do it because marrying the wrong person is a really expensive mistake. Not just because of all the assets that have to be split, but getting divorced costs a lot of money.

OLA: Which people don’t talk about either, do they? I think, going back to the early stages of dating, a lot of people don’t ask about money spending habits. They may think it’s weird they were asked that on the date, but I think it’s really important to know. I think it’s a really important question.

JASPER: Would you ask that on the first date though?

OLA: First date? Maybe not. But third or fourth!

PHILIPPA: Yeah, we did make a whole podcast about how your relationships can impact your finances, but it’s always worth saying and it isn’t just romantic relationships!

OLA: Friendships, I think, are a big one as well. Trying to keep up with certain friendships can also be really, really hard. You don’t want to get into debt just to keep up with your friends, your real friends anyway. That shouldn’t be an issue.

PHILIPPA: That’s a really good point. It plays into something we always say - have good financial conversations and don’t just push money under the carpet. Thank you everyone. It was a great discussion. We’ve thought about so many different things that can go wrong, but now we all know what to watch out for.

Once more, please do remember anything discussed on the podcast shouldn’t be regarded as financial advice or legal advice and when investing your capital is at risk.

We’ll be back in the new year for series three of our award-winning podcast. And what better way to start than with a dream that may be one of your own New Year’s resolutions? Starting your own business.

And we’ve got exciting news! If you’ve got the PensionBee app, you can now listen to The Pension Confident Podcast on our brand new in-app player. So, why not catch up on all our episodes while you check up on your pension? If you’re finding the podcast useful, please do leave us a rating and write us a quick review in your app. You know we always love to hear your thoughts. So until January, a very Merry Christmas from all of us on the podcast and the PensionBee team, see you next year!

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Life is full of choices and we often make decisions in the present moment which we later regret. At the time of making the decision, the future consequences can often feel too abstract or uncertain.

When it comes to planning for our retirement, a disconnect between how we view our current self and our ‘retiree’ self can lead to financial problems in later life. Without a strong emotional connection to their future self, people frequently choose to spend on material possessions and experiences that they’ll enjoy in the present, over saving money for retirement.

With the State Pension age rising from ^{_state_pension_age} to ^{_pension_age_from_2028} in 2028 and people living longer, it’s essential to put money away consistently to build retirement savings. People know this, yet many don’t put enough money aside for their later years. If you’re someone who thinks life is for living now not later, and your pension savings are woefully under-funded as a result, you might need to work on making friends with your future self.

Do you feel connected to your future self?

Close your eyes and picture your next milestone birthday in the future. Do you see yourself in your mind’s eye from the perspective of an observer? Are you looking at a scene where you see yourself as a character? Or are you immersed ‘in the picture’, viewing the scene through your own eyes?

It’s not uncommon for people to see themselves in the future as a third party, like they would another person. Is it any wonder then that we struggle to really connect with that version of ourselves when they don’t feel like ‘us’?

Social Psychologist Hal Ersner-Hershfield is known for his research in this area. He performed a study to test how connected people felt to the older versions of who they are now, and then analysed those results alongside how much they had saved.

He used Venn diagrams of seven pairs of circles - one labeled “current self” and the other labeled “future self”. Starting with a pair which didn’t overlap at all, each pair overlapped to different degrees until the final pair were almost completely overlapping. Research participants then chose the pair of circles which indicated how connected they felt to their future selves.

Unsurprisingly, people who chose the circles with more overlap tended to have more money saved than those who didn’t feel their two selves were closely linked.

A strong connection with our future self is clearly the key to taking actions now which will be of benefit to us in later life. So how can we strengthen that association with our future selves to ensure we behave in a way which has a positive effect for us in later life? Here are seven strategies that you may want to try for yourself.

1. Transform into the person you are becoming

In another of Hershfield’s studies, two groups of students were shown images of their own faces. One group were shown images that had been digitally altered so they appeared 50 years older. The other group were shown a current photo of themselves. The students were asked, while looking at the image, to specify how much of their salary they wanted to allocate to their retirement savings. The group looking at the image of themselves in 50 years opted to save an average of 3^{_personal_allowance_rate} more than the students looking at their current photo.

Being able to ‘see’ the future is clearly a powerful motivator for action. To mimic this study, try uploading a current photo into an ageing app such as AgingBooth or Oldify.

If that photo were a screensaver on your laptop or your phone, would it influence your spending and savings habits today? Perhaps that avatar of ‘elderly you’ will remind you that your choices and behaviour now will impact your future self.

2. Think of your future self as a close loved one

If you struggle to think of yourself and the future ‘you’ as the same person, try to imagine yourself as a loved one such as a child, partner or parent. In the same way that you may feel a sense of responsibility and duty towards them, learn to treat your future self in the same way.

3. Visualise the best version of yourself in the future

One of the most creative and fun ways to envision yourself living in the future is using a vision board. A vision board helps you to visually represent the person you want to become, living your best life. It helps clarify what a happy future could look like for you. It can include ideas for where you’ll be living, hobbies you’ll be enjoying, people you’ll be with, travels, cars. Whatever you feel represents a future life being lived with enjoyment and positivity.

You can either collect images and motivational phrases from magazines and books to create a physical vision board, or use an online tool. The more realistic and vivid you can make that vision of your future self, the higher the likelihood that you’ll take actions now to achieve that vision.

The process of curating the images for the vision board can be really powerful in itself. It often brings awareness to ideas or thoughts about the person you’re becoming which may otherwise have been repressed.

Once you have your vision board, then think about any obvious obstacles that could prevent you from reaching that future vision? Once you become aware of them, you can start working to overcome them.

4. ‘Dear Future Me’: write to your future self

Another powerful way to connect with your future self is by writing the best possible version of them a letter. In your letter, focus on all of the things that the future version of yourself has achieved. Think about how and why these achievements have been possible. What happened between now and that point in the future to facilitate their achievement? This helps us create awareness around the actions and decisions needed to make that vision a reality.

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5. Turn this into a dialogue and reply back from your future self

Two perspectives are always better than one. You can take this exercise further by stepping into your future self and sharing your knowledge and learnings with the ‘you’ of the present day.

What lessons could they share about the choices they’ve made and the resulting outcomes? Do they have any advice to offer the younger you? Is there anything they’ve learned which they wish they’d known sooner and acted on?

Wrap up your letter by thanking your present-day self for having the courage to make the kinds of changes that were needed to enable their life. You may want to specify habits that were changed, goals that were prioritised, and any sacrifices that were made.

6. Journaling prompts

If writing a letter feels too abstract for you, use journaling prompts to build an emotional connection with your future self. Here are some you could start with:

• Think about your life in five years. Are you still doing the same kind of work you do now? Are you living in the same house? Who are the people you spend the most time with? What hobbies do you enjoy? You can then repeat the exercise, extending the time frame.
• How are the actions you take today impacting your future in the next year / five years / 20 years?
• What changes can you make today to have a more positive impact on your future?

7. Self coaching and motivation

The exercises above will help strengthen the all important connection with your future self. They also provide vital insights into the wheels that need to be put in motion to secure your future financial security in later life.

This awareness is important, but change requires actions to follow once you have this new knowledge. If you know you have some work to do to bolster your retirement savings for future ‘you’, what actions do you now need to take? When you have this list, keep motivated to act on it using FutureMe to send emails to yourself at scheduled times in the future. You can be your own best coach and cheerleader on this journey.

If you want to keep yourself accountable to save regularly for your retirement, you may want to schedule a sequence of emails as follows:

• ‘It’s time to set up your new SIPP / review how much is currently in your pension pot?’ (delete as appropriate).
• ‘Do you need to select / review (delete as appropriate) which fund you want your pension invested in?’.
• ‘Is your standing order set up to make sure money is being invested regularly into your retirement savings?’.
• ‘It’s time to hop on to a pension calculator and make sure that your contributions are sufficient to achieve your retirement income goal’. (You could send yourself this one every year).
• ‘Have your retirement goals changed? Think about the age at which you are planning to retire and the annual income you are hoping to have access to during retirement’.
• ‘Congratulations, it’s pay review month. Can you afford to increase your monthly pension contributions?’ (Send this every year on annual review month).

One day, you’re going to wake up and see a real life version of that digitally altered you staring back at you in the mirror. Acting now will give them the best opportunity to live their best life.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Emma Maslin is a certified Financial Coach and Mentor, Financial Wellness Speaker and Founder of multi award-winning personal finance education website The Money Whisperer. A former Chartered Accountant, Emma believes financial health and wellbeing isn’t a luxury just for the wealthy; it’s a basic need for all of us.

This article was last updated on 24/07/2025

The worst money mistakes can often be the simplest. And depending what stage of life you’re at, you’ll have different priorities for how to fix things. Here’s our quick guide to avoiding financial mistakes, and what to watch out for when.

From poor financial planning to credit card problems and shopping around, the habits you start and change today can help you turn around the most common money mistakes.

Common money mistakes in your 20s and 30s

This is the point where most adults have flown (or are in and out of) the nest. You might still have the backstop of support from family – whether it’s your old room to sleep in or emergency cash in your account – but a student finance arrangement or proper salary is the security backbone for lots of people in their 20s and 30s.

Which are the worst money mistakes? Here are a few common traps, and how to keep things on the straight and narrow.

Failing to track and budget

This might sound obvious, but the most common money mistakes start here. A budget gives you a clear picture of what you have (or don’t have), what’s coming up and where the gaps are. In theory, it means there are no surprises. And if one does come up, for example, a parking fine, you should have an emergency fund to cover it.

Setting a budget can be as simple as giving yourself a weekly allowance, and sticking to it, or creating a spreadsheet plan. There are also lots of apps you can make use of, from your bank’s budgeting tools and spending limits to specific money-tracking apps.

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Credit cards for everyday spend

You need to do a shop but know your bank balance is looking low. You’ve got a big limit on your credit card so it can’t hurt to put a few groceries on there, right? Wrong. In fact it’s one of the most common money mistakes people make in their 20s.

Having a credit card can be a key part of a healthy financial set-up. As banks are putting new measures on overdrafts and moving customers in the direction of a credit card alternative, we’re headed for more credit usage overall. But credit cards aren’t a solution for everyday spending. They’re there to help you build a credit rating, by paying the balance regularly, and for single purchases you need to make now but have budgeted for and can pay off later.

Not checking your bank balance

It’s a similar scenario. If you’re whipping your card (or phone) out every day, closing your eyes and waiting for the payment ‘authorised’ message to appear, only to breathe a sigh of relief and sink further into your overdraft, something needs to change.

Whilst it might feel like there’s no point checking your balance – you already know it’s not a pretty sight – ignoring it can create more long-term anxiety and problems. Don’t make this common money mistake. Take the reins and check it now. Next step, build a plan to improve your finances. Ask someone you trust to help you with this, or speak to a student counsellor or someone at the MoneyHelper.

Buying brand new

‘Excessive spending’ might be putting it harshly, but from a new car to baby clothes and equipment, buying everything brand new is one of those common money mistakes lots of people make, especially in the jam-packed years of becoming new parents and homeowners.

Shop around and look for more sustainable options, both on your wallet and the environment. There’s a whole world of ‘reuse’ options out here, and Instagram’s a great place to start. ‘Nearly new’ sales and exchange or reuseable services are growing in popularity, providing great quality for less money.

Not taking out insurance

This may seem counterintuitive when you pay your premium, but having no insurance could end up costing you big in the long run.

For example, if you don’t take out contents insurance for your new home, replacing your belongings could cost thousands. If you’re renting, your landlord will probably have buildings insurance and maybe contents insurance for their own furniture and fittings, but you’ll need your own cover to protect your possessions.

Skipping car insurance can even land you with a criminal record, so don’t be tempted to save on the premium and not have it in place. Make it part of your budget, and take out insurance. It could save you a life-changing cost.

Ignoring your ISA allowance

An Individual Savings Account (ISA) lets you save money without paying tax, up to certain limits.

For the ^{_current_tax_year_yyyy_yy} tax year, the maximum you can save in an ISA is ^{_isa_allowance}. That might seem like an unreachable amount, but tax-free saving’s a fantastic habit and you can build up and dial down the amount you put in, depending on your situation.

There are a few different types of ISAs and what you can do with them is age-dependent. You’ll need to be:

• 16 or over to open a cash ISA;
• 18 or over to open a stocks and shares or innovative finance ISA;
• 18 or over and under 40 to open a Lifetime ISA (LISA); and
• a resident in the UK (or a Crown servant, or their spouse or civil partner).

As you can see, it pays to know the limits now and plan ISA savings into your long-term goals. Beginning in your 40s is one of those common financial mistakes which prevents you from benefitting from a Lifetime ISA, and cuts out a chunk of tax-free saving opportunities in your 30s and 40s.

Delaying your pension plans

Retirement might not be top of your agenda right now, but it needs to be on your radar and part of your saving plans. The pot of money you have to fund life when you’re no longer working is only as big as the amount you put in, and you can make the most of tax relief and employer contributions right through your working life.

PensionBee has helpful guides for retirement planning whether you’re in your 20s, 30s, 40s or 50s. Read up, look at your budget and get to grips with your pension now.

Money mistakes in your 40s, 50s and beyond

By this point you might be on a more definite career path, or have older children to support. Either way, hopefully you’ve picked up some good habits and know the value of a good credit rating and savings arrangement.

Your priority should be thinking about the future, setting financial goals and shopping around for the deals that will give you best value for money. Poor financial planning at this point can make a big difference at retirement.

Neglecting your pension

A pension is one of the most effective tools you have to support yourself in later life. And the sooner you start saving into one, the more prepared you’ll be. Don’t make the mistake of underestimating how much money you’ll need in retirement. It can be surprising.

There’s lots of information across the PensionBee Pensions Explained and Blog hubs, to help you get to grips with pensions and retirement. Your 40s are great years to really build momentum with your savings, by reviewing your lifestyle and making pension contributions where you can. A pension plan is tax-efficient too, and you can currently get tax relief on gross contributions up to ^{_annual_allowance} a year or 10^{_personal_allowance_rate} of your salary (whichever is lower) for tax year ^{_current_tax_year_yyyy_yy}.

Not shopping around

From credit cards and savings accounts to new mortgage offers, insurance arrangements and ‘big spend’ purchases, shopping around is a sure-fire way to spot the best deals.

There are lots of alert services you can sign up to, handy for keeping your eye on smart buys. But the real skill comes in doing your research, finding a better price and, if possible, showing it to the brand you’re looking to buy from, making use of any price match guarantee.

It’s not a savings account, but it’s a form of saving, and can quickly mount up on the ‘big spends’. Watch out also for offer codes and limited time bargains. It might pay to hold off on a purchase and go with a cheaper brand or website, if you know they’re about to launch a big discount.

Listen to episode 23 of The Pension Confident Podcast and hear from our panel of expert financial guests as they discuss their biggest financial mistakes and how they overcame them. You can also watch the episode on YouTube or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice..

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in June 2023?

Investors are often curious to see how companies are performing. Especially within the current landscape of historically high inflation and interest rates. That’s where earnings season comes in. This where every three months publicly listed companies report their financial results. This offers investors a glimpse into a company’s financial health.

July’s earning season also marks the halfway point of the calendar year. This gives investors a temperature check on how their investments are doing in 2023. These results may have a big impact on the value of the company’s shares (which are units of ownership). As such, earnings season can make investments volatile.

Read on to discover how markets have performed this month. And which companies have seen strong performance in the first half of 2023.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index rose by almost 4% in July. This brings the year-to-date performance close to +2%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by almost 2% in July. This brings the year-to-date performance close to +18%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by over 3% in July. This brings the year-to-date performance close to +^_basic_rate.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index rose by over 6% in July. This brings the year-to-date performance close to +2%.

Source: BBC Market Data

What are the ‘Magnificent Seven’?

The ‘Magnificent Seven’ are a group of seven tech giants that are driving up the value of many investments. They are: Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia. These companies are all leaders in their respective industries. And they’ve all seen significant growth in recent years. But, why does this matter?

Many UK pensions invest heavily in US companies - including the Magnificent Seven. This is because these companies are some of the biggest - and in recent years most profitable - in the world. You can measure how much a company’s worth by ‘market capitalisation’. This is based on the current share price and the number of outstanding shares.

Valuations as at 1 August 2023.

As you can see, these companies are all worth trillions of dollars. Yet there’s a discussion whether the US stock market’s too dependent on these seven companies. Investors know that big companies can’t maintain high growth forever. And past results don’t guarantee future results.

How are these companies performing in the US stock market?

The S&P 500’s an index that tracks the performance of 500 of the largest public US companies. It’s considered to be a good measure of the health of the US stock market. As mentioned earlier, the S&P 500’s year-to-date performance is close to +^_basic_rate. But, recently the index’s performance has been mostly driven by the Magnificent Seven.

The Magnificent Seven make up roughly a quarter of the value of the S&P 500 index. During Q2 the spotlight was on Nvidia, a company that makes chips for computers. When the ‘AI gold rush’ gained momentum, Nvidia benefitted from this and joined the club of companies worth more than $1 trillion. This is because Nvidia will reportedly generate hundreds of billions in new revenue, thanks to AI.

Five year performance as at 1 August 2023.

Pension funds typically use diversification to reduce risk. Diversification means spreading your investments around. So if one company or industry does badly, your total investment won’t be heavily impacted. This is why you may see that these profitable companies only make up a small percentage of your pension.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in August 2023?

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This is part of our quarterly plan performance series. Catch up on last quarter’s summary here: How PensionBee’s plans are performing.

Global inflation has concerned investors throughout 2023. There’s a growing sense that central banks are struggling to get it under control fast enough. This has led to turbulence in the bond markets, with inflation-linked gilts and UK gilts suffering.

Across the Atlantic Ocean, the US stock market’s been flourishing. With the ‘AI gold rush’ underway, the S&P 500 Index rose almost 16% in the first half of 2023. Yet, this growth is primarily driven by just seven technology companies.

Despite these challenges, there’s an overarching theme of optimism. The pound sterling has been strengthening against the US dollar and there’s even a renewed interest in the UK economy.

Keep reading to find out how global markets and our PensionBee plans have performed over 2023 so far.

This blog’s only meant to provide information. The data comes from our money managers or plan factsheets. Performance figures are before fees and after taxes. Past performance isn’t an indicator of what will happen in the future. As with all investments, capital is at risk.

Company shares in Q2 2023

What are company shares?

Company shares are units of ownership in a company. When a company wants to raise money, it can issue shares to investors who pay a certain amount of money for each share. By buying shares, investors become part-owners of the company and can enjoy its profits or growth. But, they also take on the risk of losing money if the company performs poorly or goes bankrupt. Company shares are also known as stocks or equities, and they’re commonly traded on stock markets.

Global stock markets

Global stock markets were hit hard in 2022, but are slowly recovering in 2023. The performance of company shares has been mixed. Technology and healthcare companies have done well, as these sectors have benefited from artificial intelligence and ongoing demand for products and services. Energy and financial companies have struggled to keep up, as these sectors have been impacted by rising inflation and interest rates.

Source: BBC Market Data

PensionBee’s equity plans

^ 3 month returns as the Impact Plan launched on 15 February 2023 and full H1 data isn’t available.

^^ Equity % at 30 June 2023, as changes on a weekly basis due to actively managed components.

Investment performance is taken from money manager factsheets. To view the factsheets, please visit our Plans page. All performance is reported in gross figures and may not take account of fees associated with certain investments. Past performance is not an indicator of future performance. Capital at risk.

Equity content refers to the amount of exposure each plan has to global stock markets and other listed risk-on assets, such as property and commodities.

Bonds in Q2 2023

What are bonds?

Bonds are a type of investment where you lend money to an organisation, like a government or company. In return, they agree to pay you back with interest over a period of time. Bond yield’s the annual return that an investor gets from a bond. Bonds are considered to be lower risk than company shares, because you usually know how much money you’ll get back. This makes them a good option for people who are approaching retirement and need a steady stream of income. Bonds are also known as fixed-income securities.

Global bond markets

Global bond markets had a tough year in 2022, but they’re expected to recover in 2023. Central banks around the world have raised interest rates in an effort to combat inflation. This has led to higher yields on government bonds, as well as on corporate and other types of bonds. As interest rates rise, bond prices often fall. So far this year, bond prices have held up relatively well, even as yields have risen.

Source: Morningstar

PensionBee’s fixed-income plans

Investment performance is taken from money manager factsheets. To view the factsheets, please visit our Plans page. All performance is reported in gross figures and may not take account of fees associated with certain investments. Past performance is not an indicator of future performance. Capital at risk.

Summary

You may find yourself rethinking your pension savings during the cost of living crisis. Or worrying about whether you’re making the right choices. PensionBee customers can have peace of mind knowing that our pension plans are being managed by some of the world’s biggest money managers. Again, it’s worth remembering that it’s normal and expected for pensions to go up and down in value over time.

This is part of our quarterly plan performance series. Check out the next quarter’s summary here: How PensionBee’s plans are performing in 2023 (as at Q3).

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

At PensionBee, our customers’ account security is a top priority. We have a variety of security measures in place to help protect our customers’ accounts. Using two-factor authentication (2FA)’s an easy way to immediately boost your account security. We now require all of our customers to enable 2FA.

What’s 2FA and how does it work?

Two-factor authentication helps ensure you’re the only person able to access your account. It adds an extra layer of security, along with your password, when logging in to your account.

It works by sending a unique six-digit code in a text message to your mobile phone when you attempt to log in to your account. After entering your username and password you’ll also need to type in the code you were sent. This means that if someone tries to access your account they would need both your password and your phone.

Why do we require using 2FA?

Unfortunately, a password alone is often not enough to protect your online accounts as passwords can be compromised through various methods such as phishing scams. Many people often use the same password across many accounts. So, if the password for one account is known, other accounts become vulnerable too. There’s also been a general increase in cyber attacks in recent years. Hacking techniques are becoming more advanced which makes it even more important to keep your online accounts as secure as possible. 2FA makes it much harder for attackers to gain access to your account.

How do I enable 2FA?

If you’ve not already enabled 2FA, the next time you log in to your account you’ll be presented with a prompt. Simply, follow the instructions below and you’ll be guided through the setup process.

1. On your ‘Account’ screen enter your mobile phone number. We’ll send you a text message with a unique security code to this number.
2. Enter your security code onto the ‘Verify mobile number’ screen and select ‘Next’.

That’s it! You’re all set up. The next time you log in to your account with your email address and password we’ll text you a unique six-digit code.

If you don’t have a mobile phone number, you’ll need to phone your BeeKeeper to pass a separate security check. Once completed you’ll be able to access your account as normal.

Protecting your PensionBee account

If you have any problems enabling 2FA for your PensionBee account, please contact your BeeKeeper who’ll be happy to help.

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This article was last updated on 09/04/2025

Private pension savings will give your income a boost in retirement beyond the State Pension. But how far will your savings go? In this article we look at what different pension pot values could mean in retirement.

How to take retirement income

If you have a defined contribution pension, you can withdraw your savings through drawdown – meaning you gradually take out money over time. Another option’s to buy an annuity, but for this article we’ll concentrate on drawdown.

The typical advice is not to withdraw more than 4% a year. This’ll help you avoid running out of money and facing a pension shortfall if you live for longer than expected. You can access private or workplace pension savings from age 55 (rising to 57 from 2028), although some wait until the official State Pension age of 66 (rising to 67 from 2028) or later to dip into their pension savings.

The first 25% of your pension can be withdrawn tax-free. You can either take the 25% tax-free cash as a lump sum at the beginning or in portions. There may be income tax to pay on annual income beyond the personal allowance (currently £12,570 for 2025/26).

With this in mind, let’s look at what that 4% withdrawal figure means in reality.

Income from a £100,000 pension pot

In simple terms, a £100,000 defined contribution pension could give you a starting income of £4,000 a year or £333 a month if you withdraw 4%. That’s assuming you don’t take the 25% tax-free cash upfront. If you decide to take the tax-free cash at the start, you’d be left with a pot worth £75,000. This would give you an income of £3,000 a year or £250 a month.

If your money’s still invested in the stock market, the value of your pot will change on a daily basis. To keep things simple, you could withdraw a sum at the start of each year and pay yourself a set amount monthly. Ideally the amount would increase annually with inflation. To see how inflation will impact your retirement savings use PensionBee’s Inflation Calculator.

You’d aim to achieve annual returns above 4% to reduce the risk of running out of money, and bear in mind fees charged by your provider. If you qualify for the full new State Pension, this’ll give you a further £11,973 a year, or £997.75 a month (2025/26). Combined with private pension savings of £100,000, it could take your total pre-tax income from pensions to £1,330.75 a month.

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Income from a £200,000 pension pot

Total pension savings of £200,000 could give you an income of £8,000 a year or £667 a month if you withdraw 4% a year and don’t take the tax-free cash at the start. On top of the full new State Pension, you’d therefore have a pre-tax monthly income of around £1,664.75.

Income from a £300,000 pension pot

A £300,000 pension pot would mean you have a starting annual income of £12,000, or £1,000 a month. Combined with the full new State Pension, your total monthly pre-tax income would be around £1,997.75.

Below’s a table showing the income you could receive based on different sized pots.

How to build a £100,000, £200,000, £300,000 pension pot

When paying money into a pension most savers will benefit from tax relief, reducing the cost to you. PensionBee’s Pension Tax Relief Calculator shows how much you could gain. If you’re employed, and meet certain criteria, your employer will also make contributions that’ll boost the value of your pot. So achieving a six-figure pension pot’s less daunting than you might think.

Assuming you have no pension savings and aim to retire at age 66, the below table shows how much should go into your pension each month to achieve total savings of £100,000, £200,000 and £300,000 by age 66. It assumes investment growth of 5% a year, inflation at 2.5% and management fees of 0.70% a year. The figures have been calculated using PensionBee’s Pension Calculator, and are inclusive of tax relief and potential employer contributions.

Listen to episode 11 of The Pension Confident Podcast as our guests discuss what a happy retirement looks like and how you can get there. Listen on all major podcast platforms, watch on YouTube, or read the transcript.

Summary

• Private pension savings will boost your retirement income beyond the State Pension.
• Tax relief and employer contributions will help your pot grow quicker, reducing the cost to you.
• The sooner you start saving, the longer your money will have to grow thanks to compound interest - putting you on track for a more comfortable retirement.

Elizabeth Anderson is a Personal Finance Journalist and Editor (Times Money, Telegraph, Metro and i paper).

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in February 2023?

This March the clocks have gone forward and, according to this year’s Spring Budget, the UK economy’s also moving forward. The Chancellor, Jeremy Hunt, shared his vision for long-term fiscal growth in our (sometimes) green and pleasant land. Like that of a gardener, the Chancellor was sowing the seeds of growth across the country. What’s been announced? The government’s pledged to halve inflation, reduce debt, and get the economy growing again. Let’s break those down:

• First, with inflation standing tall at 10.7% at the end of 2022, the UK’s already on track to achieve an inflation rate of 2.9% by the end of 2023. So this announcement’s closer to a projection than a promise. Still, good news in a cost of living crisis.
• Second, shovelling more taxpayer money towards filling the public debt hole - and potholes too while they’re at it. This wallflower tax update (along with a 5p cut to fuel duty and reduction in alcohol taxes for pubs) is unlikely to make news headlines.
• Third, creating a growth economy by increasing employment rates. The Chancellor’s ‘back to work’ plan involves incentives for “the economically inactive”. Specifically targeting people living with disabilities, new parents, and those over the age of 50.

However, not everything in the garden’s rosy. Behind these ambitious growth targets is the reality that Britain’s the only G7 economy forecast to shrink in 2023. Although the latest forecasts suggest the UK will avoid a ‘technical’ recession, we’re not out of the woods yet. In efforts to raise the necessary seed money to fund these initiatives, the government has confirmed an increase from ^{_corporation_tax_small_profits} to ^{_corporation_tax} in corporation tax, along with the freeze on income tax bands (dubbed the ‘stealth tax’ by critics).

Keep reading to find out how markets have performed this month, and what does the 2023 Spring Budget mean for the future of pensions.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index fell by over 5% in March, bringing the year-to-date performance close to -1%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by over 1% in March, bringing the year-to-date performance close to +11%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by over 3% in March, bringing the year-to-date performance close to +6%.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index fell by over 1% in March, bringing the year-to-date performance close to +1%.

Source: BBC Market Data

What does the 2023 Spring Budget mean for the future of pensions?

On 15 March, the Chancellor made various policy announcements and pulled his rabbit from the hat: the lifetime allowance on pension savings would be abolished. However, those reading the small print noted the ^{_corporation_tax} tax-free portion of your pension would be capped at £268,275 (^{_corporation_tax} of the current lifetime allowance).

Expanded childcare support

To help parents with young children return to work, the government has proposed a series of reforms. This includes increasing the supply of childcare, offering an incentive bonus for registered childminders, and giving eligible households access to 30 hours of free childcare for children from nine months old (from September 2025). The combination of these new measures is hoped to reduce the average family’s childcare costs by almost 6^{_personal_allowance_rate}.

Lifetime allowance scrapped

The UK’s biggest employer’s the NHS, but due to current pension tax rules many experienced doctors are choosing to leave the workforce early to avoid high tax charges on their NHS pension savings, which can reach over ^{_basic_rate_personal_savings_allowance},000 in value over their lifetime. In reaction, the government’s introduced three measures aimed at early retirees (and not just doctors): the annual limit on tax-relieved pension savings will rise from £40,000 to ^{_annual_allowance}, the Money Purchase Annual Allowance‘s increasing from £4,000 to ^{_money_purchase_annual_allowance}, and the lifetime allowance’s being scrapped entirely.

Impact on pensions

The government’s plan to boost the economy involves creating more jobs and getting money back through taxes. Most taxpayers help pay for current retirees’ State Pension through National Insurance contributions, while saving into their own workplace pensions under Auto-Enrolment rules. Recently there’s been more public awareness that our current State Pension’s unlikely to support a comfortable lifestyle and private pension savings are vital to achieving a happy retirement.

While the current Conservative government has scrapped the lifetime allowance, the Labour party has promised to overturn these changes if they come into power. With the next general election due on or before 17 December 2024, only time will tell how this will impact pension savers in future.

Now’s a good time to consider taking advantage of available government-backed benefits, such as the ^{_corporation_tax} tax top up on personal pension contributions. We’ve created a handy Pension Tax Relief Calculator so figuring out how much tax relief you could receive on your pension contributions is hassle-free. And with the new tax year around the corner, now may be the perfect time to water your pension pot.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in April 2023?

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

What is Easy bank transfer?

Easy bank transfer is a faster and more convenient way of paying into your PensionBee pension from your bank account. Easy bank transfers have been made possible through Open Banking technology, which makes it easier to share your financial information between your bank and the financial services providers you authorise.

What are the benefits of Easy bank transfer?

Saves time

The main benefit of using Easy bank transfer is that there’s no need to manually enter your bank details, saving you time whenever you want to set up a transfer or make a contribution to your pension.

More convenient

It’s more convenient than other payment methods as you don’t have to dig around for your bank details, worry whether you’ve entered details like your bank’s sort code or reference number, correctly or recall them to mind.

Funds should arrive instantly

When using Easy bank transfer, your contribution should reach PensionBee instantly. It can take around one working day to appear in your Balance tab. It’ll take up to five working days for our money managers to invest your funds into your pension.

The fastest way to invest your money

As your money typically arrives in your account instantly we’re able to invest it sooner than other payment methods making it the fastest way to put your money to work.

Secure

You can rest assured your transaction will be dealt with securely. We securely direct you to your bank’s app where you authenticate your transaction.

“For too long consumers have put up with contributing to a pension being much more difficult than it should be, due to slow and outdated payment methods.” – Jonathan Lister Parsons, CTO of PensionBee

How can you use Easy bank transfer?

You can get started with Easy bank transfer by following the steps below.

1. Source of funds

Tell us where your funds are coming from; earnings, savings or another source.

2. Choose how much and when to contribute

You can choose to make a one-off contribution or set up a regular, monthly payment. If you’re eligible, we’ll also show you how much tax relief we’ll claim from HMRC on your behalf.

3. Select your bank

Find the name of your bank from our list of supported banks. If your bank isn’t available, you can still make a manual bank transfer to your PensionBee account, using the details we provide.

4. Approve the transaction

We’ll securely direct you to your bank’s app to approve your transaction before returning you to your PensionBee account to confirm the transaction has been completed.

Whilst we have multiple payment methods, Easy bank transfer does just what it says. It’s the quickest and most convenient way to contribute to your pension and provides the flexibility to make both one-off and regular contributions. You can watch our How to make an Easy bank transfer guide on YouTube.

Let us know what you think

We’ve been utilising the benefits and opportunities that Open Banking provides to deliver features that make using our product as easy as possible. We think you’ll love using our Easy bank transfer feature, but we’d love to hear from you if there are any ways we could improve how Easy bank transfer works, or enhance your PensionBee experience. If you have any feedback, suggestions or questions please get in touch, you can drop us an email at feedback@pensionbee.com.

Additionally, if you’re a PensionBee customer and would like to help us shape the future of our products and services by participating in selected surveys or testing new features, then why not sign up to become a HoneyMaker?

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Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in July 2022?

After months of investments tumbling in a downward trend, July seemed to mark a positive turning point for global markets. In fact, China was the only leading stock market to fall in value. This brief rebound had created speculation about whether or not stock markets were beginning to stabilise, or even recover. However, August reminded us all that we’re still firmly in the grips of a bear market.

For a few weeks in August an appealing picture was forming, as US companies had better than expected earnings and share prices grew in response. What changed? On 26 August, the Federal Reserve (the equivalent of the UK’s Bank of England) effectively announced they must continue to substantially raise interest rates to tackle inflation in the US. As a result, share prices in US companies fell.

It’s important to remember that on balance, all major stocks are still witnessing negative returns for 2022, and that bear markets aren’t permanent. Despite this recent economic dip, the gains in July have outweighed the losses in August for many investors.

Keep reading to find out how markets have performed this month.

What happened to the markets in August?

August saw many of the world’s stock markets tell a similar story of share prices rallying upwards before falling down again. Compared to some of the double digit swings we’ve seen this year, this smaller margin of market movement could be comforting to some investors.

In the US, the S&P 500 fell by 2.28% in August.

Source: Google

In the UK, the FTSE 250 fell by 4.16% in August.

Source: Google

Summary

In recent months the scale of volatility in global stock markets appears to be slowly reducing, giving investors optimism for further stability and perhaps even growth. The revived interest in US technology companies had temporarily increased share prices and created positive returns for investors.

This recovery is small in comparison to the year-to-date losses that investors in 2022 have seen. Undoubtedly, stock markets will need more time to fully recover from the three economic shocks: the war in Ukraine, the UK’s rising inflation rate, and China’s supply chain disruptions.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in September 2022?

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

The value of a currency’s often a sign of the health of a country’s economy. As currencies fluctuate in value they’re often phrased as being “strong” or “weak” compared to others. Exchange rates are those points of comparison, as you move money from one currency to the equivalent buying power in another.

This year the pound has been gradually falling in value. All currencies fluctuate in value, often in reaction to economic outlooks or trade deals. However, comparing the Great British pound (GBP) to the US dollar (USD) there’s almost a ^_ni_rate decline in 2022 alone. In recent weeks the pound has slid to its lowest level since 1985, even surpassing the fall from the coronavirus pandemic and Brexit vote. As of writing, £1 (GBP) is worth $1.15 (USD).

Source: Google, year to date comparison of GBP to USD.

Why is this happening? Simply, the two currencies are moving in different directions. The strength of the US dollar is one part of this story. The US dollar is the major global “reserve currency”, meaning when times are tough investors flock to buy it as a store of value. While the Great British pound is also a highly respected currency, the UK’s undergoing major changes to its economic and political outlook, which are concerning to some overseas investors, leading them to invest less in the country.

These changes include the perceived impact of Brexit, political considerations over the future governing arrangements in Scotland and Northern Ireland, energy costs and the war in Ukraine – as well as risks of reduced consumer expenditure during the cost of living crisis. As this gap widens, those with pensions may find their balance impacted by this exchange rate, particularly if they hold US investments in their pensions.

Why’s my pension invested in US companies?

In the UK, FTSE 250 companies have offered little growth in recent years for investors. Across the Atlantic Ocean, the S&P 500 tells a different story. US company shares continued to rally against the odds, with most sectors advancing during the same period. The success of ‘big tech’ in the US has resulted in many pension plans featuring these companies in their top 10 holdings.

Customarily funds such as pensions will invest internationally as part of diversification, the approach of spreading your investment eggs in more than one basket. Chances are many UK investors also hold more of their retirement wealth in US companies than UK companies. This is because over the past five years, the US market has greatly outperformed the UK market. As of writing, the S&P 500 has reported a positive 62% return whereas the FTSE 250 has performed with a negative -0.8% return, during the same five year period.

The US is both geographically and economically larger than the UK. Also, many global, high performing technology companies were founded and financed in the US: Alphabet (previously known as Google), Amazon, Meta (previously known as Facebook), and Microsoft - to name a few. When comparing the value of companies, economists may refer to ‘market capitalisation’ which simply means their size, or share price multiplied by the number of shares. Below is a table of the 10 largest S&P 500 Index companies and their performance during the past five years.

Source: Google; note past performance is not a guarantee of future returns

If my pension’s invested in US companies, how does that affect me in the UK?

Aside from the performance of the company shares your pension invests in abroad, you could be impacted by the currency of those investments too. If your pension’s invested in US stocks and the US dollar rises, holding all else equal, so will your returns. If the dollar falls, so will your pension balance.

Because these changes in exchange rates can cause undesirable volatility in pension investments, many fund managers will “hedge” or “cancel out” the effect of currency changes, especially if you’re closer to retirement.

Therefore, if you’re close to retirement or if your fund manager uses hedging as a way of reducing volatility, you’ll be protected from negative currency moves on your overseas investments (such as a weakening of the US dollar), but also won’t benefit from positive ones (such as a strengthening of the US dollar).

What are some of the other pension implications of a falling pound?

Those currently withdrawing an income from their pension may see a reduced purchasing power from the pound’s weaker economic position. The rate of inflation’s already hovering at a 40-year high, and a weak pound can increase inflation further because the cost to import goods increases.

The UK, in particular, is vulnerable to the volatility of exchange rates as it imports more than it exports. When these common imports into the UK (like stone, glass, and semi-precious metals) from the US increase in costs, goods in the UK become more expensive to buy. Retirees that are reliant on their fixed incomes (like annuities), will be hit the hardest as inflation erodes the buying power of their retirement income.

The current interest rate set by the Bank of England is 2.^{_corporation_tax}, following several incremental increases in an attempt to reduce inflation. The government will be creating economic policies to limit the impact of inflation, as much as possible. Energy bills have already been highlighted as a key area of concern by both parties in the House of Commons. For now retirees may feel pushed to withdraw more money to keep up with the rising costs in the UK.

Should I do something?

Aside from the pound falling, we’re still firmly in the grips of a bear market (a market downturn). The two are connected by a few factors (such as inflation and trade) but are distinct from each other. It just so happens that we’re in a period of history where currencies, economies, and stock markets are all struggling in their recovery from the global shocks of recent years.

Withdrawing your money won’t recover losses. Money invested may see recovering markets so, if you can, prioritise using rainy day funds before realising losses on your investments. Those are the key takeaways to navigating market volatility.

As strange as it may sound, contributing to your investments when markets are low can be cost-effective. Adding £100 when markets are down will usually buy you more units than when markets are up, when unit prices are more expensive.

Again, it’s worth remembering that it’s normal and expected for pensions to go up and down in value. And it’s expected that they’ll recover and grow further in the future. If you’re over the age of 50 and are considering your retirement options, you may benefit from a free Pension Wise appointment. You can book your appointment online.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This article was last updated on 19/12/2024

Managing your personal finances can often come with many challenges, from making sure you have enough to pay for household bills and all your monthly expenses, to deciding how and when to save for the future.

With so much to think about when it comes to money, it’s no wonder that finances and mental health are intrinsically linked.

Founder of Psychreg; Dennis Relojo-Howell says: “When we’re thinking about money worries, there is a lack of realisation that there is a mental health aspect to it.”

A survey by Money and Mental Health found 86% of people said their financial situation had made their mental health problems worse. And 72% said their mental health problems had made their financial situation worse.

In England alone over 1.5 million people are experiencing problem debt (meaning they’re in debt and unable to afford their repayments), and are suffering with mental health problems.

If you feel like you’re struggling, it’s important to remember that you aren’t alone and there’s help out there. The key thing to do is seek support if you start to notice that your mental health is deteriorating, whether that’s because of your financial situation or for other reasons.

If managing your money feels overwhelming, try taking things one step at a time - mental health charity Mind have shared a list of six ways to manage your money and mental health to help you get started.

1. Check if you’re eligible for any extra money or support

It can be difficult for many of us to navigate the benefits system, it’s complex and lengthy and in addition, many still feel there’s a terrible stigma attached to claiming benefits. This is due to the media’s portrayal and various misconceptions about why benefits are needed and what they’re used for. Even if you’re unsure whether you’re entitled to any support, you should never be afraid to check. The charity Turn2Us helps individuals access benefits, should you need some advice with what you’re entitled to and how to claim anything if you are.

2. Speak to someone you trust

Talking to someone you trust and sharing your concerns is often the first step to getting help when it comes to your mental health and wellbeing, and the same goes for money and mental health problems. This could be a loved one, a support worker or healthcare professional, like your GP. Ask someone you trust to check in on you from time to time, and do the same for them. Even when people seem well and don’t appear to be struggling, it never hurts to ask if they’re ok. If you’re unsure of who to talk to, there are lots of options - the Money and Mental Health website lists organisations that can help with money advice and further support services can be found on the Mind website.

COO at PensionBee and Mental Health First Aider; Tess Nicholson says: “The most important thing is to talk to somebody - whether that is the company that has sent you the bill or speaking to someone that can help with government support, or speaking to someone in your family.”

3. Get to know your money and mood patterns

You might find it helpful to take some time to think about how you feel about money and why. A good way to do this is to keep a diary and record how much you spend, and what on, as well as detailing how you felt before and afterwards. Looking back over your diary might help you understand your spending habits and patterns which could help when it comes to budgeting and planning for the future. The Money and Mental Health website has a budget planner that could provide you with a good starting point.

4. Change how you manage your finances

Overspending can happen for different reasons, and when you’re unwell you might spend more money than you want or can afford to, to make yourself feel better. But there are things you can do to try and curb overspending. This could be deleting shopping apps, making sure your card details aren’t saved on your devices and shopping websites, or giving your cards to someone you trust. Take a look at Money Saving Expert‘s wealth of tips to help with your overspending.

5. Make a list of monthly essentials

This could be things like rent or mortgage payments, energy bills, phone bills and food shops. It’s more important than ever to keep on top of paying your bills as the cost of living crisis in the UK worsens. With this in mind, it might be helpful to put all your important documents such as bank statements, bills and payslips in one place so you can easily access them when needed. You could also set aside a regular time each week or month to complete your financial tasks, like paying bills, and encourage yourself to stick to this by planning a relaxing activity after.

CCO at FSCS; Lila Pleban says: “Really look at your situation, and talk to somebody. Sometimes when you know the situation you’re in, it may not be as bad as you think it is. It may be, but at least you know.”

6. Seek professional help for managing any debts

If you’re struggling to pay off your debts, consider asking for help from a free professional debt advice organisation, such as National Debtline, StepChange or Citizens Advice. They can help you get a break from paying interest on your debts under a Government scheme called Breathing Space. You can access Breathing Space online, over the phone, or face-to-face and they’ll provide mental health support, as well as helping you look at your financial situation to see what solutions are available to you.

CCO at FSCS; Lila Pleban says: “Whether it’s your fuel bill, your telephone bill, if it’s your Sky bill, whatever bill it is, it’s important to talk to them, because many big corporations have charitable arms that can help out, some of them have grants available and often they have payment plans or cheaper tariffs.”

If you’re struggling right now and need to talk to someone, reach out to the SAMARITANS on 116 123 - they’re open 24 hours a day, 365 days a year.

You can also text the word SHOUT to 85258 to speak to a volunteer from Mental Health Innovations anonymously.

If you’re concerned about yourself, or somebody else, and you feel the situation is an emergency, then always call 999 to get immediate help. Or, alternatively call 111 if you’re looking for non-emergency advice during a period of mental ill health.

Mind are a mental health charity who provide advice and support to empower anyone experiencing a mental health problem. Visit their website, call their support line on 0300 123 3393 (lines open 9am-6pm, Monday-Friday) or, contact their community support.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Anything discussed on the podcast should not be regarded as financial advice.

The following is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode nine here, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Hello and welcome back to the Pension Confident Podcast. Pensions can be complicated. PensionBee’s on a mission to make them simple and we’re here to help you get the best out of your personal finances. I’m Philippa Lamb, and this time, we’re going to be talking about how to reduce the risk that money worries will affect your mental health.

Music starts

We’ve all got used to hearing the phrase ‘cost of living crisis‘. Bills are rising and millions of us are anxious about where that might leave us, so it’s fair to say this crisis isn’t just having an impact on our finances, it’s affecting our mental health too. The Money and Mental Health Policy Institute tells us that people facing financial difficulties are far more likely to experience issues with their mental health. 46% of people struggling with household debts also suffer from a mental health problem. So with bigger bills to come, millions of us may see our finances overstretched with all the emotional or psychological distress that can bring.

Times like this can make us feel helpless and being told not to worry really doesn’t help. So, instead today, we’re going to talk about the actions we can take to reduce that risk that money worries might make us unwell. We’ve got three experts from the world of finance and mental health here in the studio to help us with that.

We’re joined by the Chief Communications Officer of the Financial Services Compensation Scheme, that’s the FSCS for short; Lila Pleban. Hello Lila.

LILA: Hello.

PHILIPPA: Founder and Managing Director of PsychReg; Dennis Relojo-Howell is also with us. Hello Dennis.

DENNIS: Happy to be here.

PHILIPPA: And finally, we have PensionBee’s COO and a Mental Health First Aider, Tess Nicholson. Hi Tess.

TESS: Hi.

PHILIPPA: The usual reminder before we jump in: anything discussed on this podcast should not be regarded as financial advice and remember when investing, your capital is at risk.

Who will be most affected?

PHILIPPA: Before we get into more detail, I think it’s important to understand and recognise money anxiety and related mental health struggles can affect anyone. If you’re all comfortable, I think it would be good to hear a bit about our own experiences and Dennis, I know you’ve got a story to tell.

DENNIS: Yes. My formative experience actually taught me about the value of money. So just to offer some context, I grew up in a slum in the Philippines where there was no running water, no electricity, and a lot of the things that we consider necessities in life. At a young age I realised that I have to help my parents. So I did a lot of jobs. I was a street vendor in the Philippines before going to university. And also from a psychological standpoint, because I’m a researcher in psychology, a lot of literature has taught us that if we don’t have money, it could significantly impact our mental health.

PHILIPPA: Yeah, I mean, I have never experienced anything like the struggles you had growing up Dennis, but I do remember a lot of sleepless nights myself stressing about how I would manage my finances when I got divorced and I had a small child. And that stays with you, doesn’t it? I mean, it really does inform the way you think about your future life.

DENNIS: Definitely. So actually, the psychological literature says that it’s kind of an egg and chicken scenario. They’re intimately intertwined, but we don’t know whether it’s the mental health issues that trigger the financial worries, or if it’s the financial worries that trigger mental health issues. But what is clear, from the literature, is that they’re intimately intertwined. In fact, if I could just mention one statistic, the charity Money and Mental Health, they carried out a study in 2019 and what they found out is that 72% of the respondents say that if you have money worries, it can impact your mental health. The same study actually also said that 86% of the respondents said that their mental health issues trigger financial worries, so they’re really linked.

PHILIPPA: Yeah, absolutely. Tess, how about you?

TESS: I have experienced money worries and I think that the thing about money is that it’s so kind of linked to our sense of personal value. We talk about people as being worth money and what we’re really saying is that they have that much money or they have assets that are worth that much money but even the language we use suggests that we’re talking about our own personal value. Even if your money worries aren’t extreme, I think that they can still often feel quite overwhelming and whenever I’ve had money worries, even if there have been other things that have been causing me stress at the same time – that’s always been the thing that’s been the last thing on my mind when I’m trying to get to sleep at night.

PHILIPPA: Yeah, that’s the big one isn’t it?

TESS: Yeah, I saw a thread on Twitter recently actually, that was talking about how it does still stay with you as well, when you’ve had those experiences, and people were talking about still feeling that pang of worry when they go to put their card in the machine. Is there going to be anything in my account? Even though they’re fine now.

PHILIPPA: Lila?

LILA: Yeah, certainly I agree. I think most people have been through some financial worries. Dennis, I can’t imagine how you’ve grown. It’s an incredible story. I think for me, the big time in my life was when I got divorced. If I’m honest, I quite quickly found myself without a roof over my head, without any bank account because everything had been frozen. But I think it was the spiral that happened after that really got me into quite a pickle, if I’m honest. Not checking my bank account, the credit card started to be used. I started to build up a credit card bill, because I was comfort shopping, trying to keep the visage of being in control and being successful, but I wasn’t. I was completely and utterly falling apart and it really came down to a crunch, really at one point, and I had to face it. It took some time to figure it out, and it took some time to pull myself out of the hole. But I totally relate even now, I really struggle to use my credit card. I fear that I’m going to build up another big debt. I pay my bill off every week, because I’m so frightened of it getting any bigger than a little bit and when it does, I do panic even now many, many years later.

PHILIPPA: Yeah. So there’s a bit of insight around the table, isn’t there? About how this stuff can feel. Lila, tell us a bit about the FSCS. What do you do there?

LILA: Well, at the Financial Services Compensation Scheme, it’s quite a long word, we do call ourselves the FSCS for short, but even that doesn’t roll off the tongue very naturally. But basically, we protect people’s money and we can pay compensation if your firm goes bust. We provide a completely free service for consumers. We’re funded by the Financial Services Industry. You’ll see us on your bank account apps, ‘FSCS protected’, and we protect a large proportion of the bank accounts in the UK.

PHILIPPA: So if the bank falls over, you’re the ones that people ring.

LILA: We protect you. You saw us really come into our own in the financial crisis in 2008. But we also protect lots of other things, such as pensions, investments, funeral plans, home finance advice, PPI, debt management plans. So if your money is protected by us, then if something goes wrong, then we step in.

PHILIPPA: Which is a comforting thought. I presume you must see a lot of people contacting you at a particularly vulnerable time for them, very stressed about their financial situation. Are you seeing a lot of that right now?

LILA: Well, because of the nature of the business we’re in, pretty much every single person that comes to us has lost something. Sometimes it’s a large sum of money, often it’s everything they own. Sometimes it’s a relatively small amount of money such as PPI, but every single person that comes to us has a story to tell and there are some really common themes that we see. People are embarrassed, they feel ashamed. They are worried, it’s keeping them up at night. We have seen people who are suicidal. So it is a really challenging time for us at the moment and we have to be really on our toes.

PHILIPPA: Okay, let’s think about practical steps. Tess, earliest signs for people, red flags that they might be starting to lose control of their finances?

TESS: I think I would say that, that would be things like if you find that you’re dipping into your overdraft a bit more than you might normally, or at all. Your savings, credit card - using your credit card, maybe when you don’t normally.

PHILIPPA: Or getting another credit card?

TESS: Well yeah, and I think it’s also when you just have that sort of feeling of like, I don’t know actually where that money’s gone. Sometimes at the end of the month, even if actually you are getting to the end of the month, and you’ve got money leftover, and you’re fine. Sometimes you have that feeling of I’m not really sure where some of that money went. And I think that even that can be a very early sign of like, maybe you’re starting to lose control a little bit.

PHILIPPA: Yeah, absolutely. It’s just kind of dripping away and there’s that confusion about - there’s less than I thought. It’s always less than you thought there should be, isn’t it? Dennis, what about red flags on early-stage poor mental health?

DENNIS: I would categorise them into three. So we could have physical functioning, it could be affecting your emotional functioning, and your cognitive functioning. So as an example, for physical functioning, it might have impacted your sleeping pattern. Another is that you might be someone who is physically active, and who does exercise a lot and all of a sudden, you become easily fatigued. So that’s a red flag. When it comes to emotional functioning, it might be before that you see things in a more rational way but because of money worries, you become sort of illogical in the way you approach your problems. So those are the red flags for me.

PHILIPPA: Now, the cost of living crisis, obviously, it’s hitting people all over the country, all sorts of people. But households in the lowest 20% income bracket are two to three times more likely to develop mental health problems than higher earners. So your level of wealth, your mental health, they are intrinsically linked, aren’t they?

DENNIS: Yes, definitely. So if you’re within a lower socio-economic status, it impacts your health and a lot of psychological literature actually demonstrates that. But the interesting thing here, and what research shows is that it’s not actually the amount per se, that actually impacts your mental health. But it’s actually how you frame that, your perception of it. For some people, if you have a debt of £2,000, that’s a lot. Whereas for some people, £20,000 is not a lot, but it’s actually your framing of how you see it. Whether you have a sense of hope, whether you have a sense of optimism, or resilience even. So these are the things that really impact your mental health. When we don’t have money, we actually think that we’ve lost the ability to control things, we’ve lost our sense of agency, because we can’t provide for ourselves, we cannot provide for our family.

PHILIPPA: Tess, you must be hearing a lot of concerns from PensionBee customers?

TESS: Yeah, we are. I think predominantly right now the concerns for them are around energy prices. That’s what we’re hearing a lot of. We’re seeing more people looking to withdraw money from their pension before retirement age. We’re seeing that from people, as early as in their 20s who are really struggling with money. And then we’re also seeing it with people at retirement who are worried about things like, ‘If I drawdown, is that going to impact on my eligibility for pension credit?’. We’ve obviously had a lot of market volatility this year and so people are watching their balances quite a lot and worrying about that.

PHILIPPA: Lila, Tess mentioned retired people. Obviously there are some groups we know are particularly vulnerable. We’ve got retired people, people with disabilities, there’s a bunch of others as well.

LILA: Interestingly, a large proportion of the people that come to FSCS for help are closer to retirement and actually have less time to make up any gaps. I’m with you, Tess, that people are looking to drawdown, they’re looking to then make their money go as far as possible. I think the worry for me is that people get lured by scams, deals that are too good to be true. But we see people being lured by investments that just simply don’t exist. Wind farms in Croatia, storage pods, hotels.

PHILIPPA: We made a podcast about this a couple of episodes back. They’re so quick on their feet to jump into a financial crisis, aren’t they?

LILA: They give people hope. People start to think, ‘Oh, I can make my money back’, and it’s quite frightening. We don’t cover scams and fraud, so we can’t help these people. So it’s really important that people really look at what they’re about to do.

PHILIPPA: At the other end of the age scale, I’m thinking about gig workers, self-employed people.

LILA: Yeah. And I think then we have a different challenge, which is, people aren’t investing in their future. They’re unable to invest in their future. And then we have other things, exciting things like cryptocurrency, etc. that are a lure to make a few fast pounds. More often than not, we call them risky, high risk investments. They can leave people without anything.

PHILIPPA: The other group, which we haven’t really talked about, is all these people largely in the middle, people who’ve been comfortable, always been comfortable, not really had to worry too much. And now or looking ahead to next year, suddenly those people are thinking, ‘We could be in real trouble here, even though we’re still earning quite a lot of money. We’ve got a lot of outgoings’. That’s new, isn’t it?

LILA: Yeah, I think it’s an area that we’re looking at. I think you see that come through with people, again, the same problems around scams and fraud increasing, but also their behaviours. Some of the early signs we see of people being in quite a lot of distress, is their behaviour. Whether that’s how they speak to people on the phone, when they call up asking for an update, for example, on their claim, becoming increasingly agitated. Ordinary people who are genuinely really nice, are starting to get very angry. You do see that starting to come through in the calls.

How to protect yourself?

PHILIPPA: Let’s talk a bit about how to protect yourself and learn coping strategies, things we need to know about managing this burden of money worry, because it’s not like it’s going away. What is the first useful step you can take if you think stuff is getting out of control? Money is getting out of control?

LILA: I’ll draw on my personal experience for this one, and I think it’s about facing it, and looking at it and really being honest. I hid away from my money worries, and they weren’t going anywhere, but downwards. So I think it’s about really facing into it and talking to somebody about it.

PHILIPPA: So taking stock?

LILA: Taking stock and just being really honest with yourself. I was only able to take some practical steps to help myself, once I really faced into what was going on.

PHILIPPA: That brings us to the harsh reality of, if you just know you cannot pay a bill. Temptation is just to ignore it, stuff it in a drawer, or just not look at it on your laptop. But actually, reaching out to whoever has sent you the bill is the key thing to do, isn’t it?

LILA: I think reaching out, because many companies have procedures in place to help people who are struggling. And then there are some great organisations who can help you. We’ve got the Money Advice and Pension Service, we’ve got Money Saving Expert, Money and Mental Health. There are many organisations out there who, just, even if you don’t want to speak to anybody, just Google online and you can start to feel reassured that there is help. For me, taking control really helped me. I wasn’t in control of my money, but taking those steps made me feel in control and gave me my confidence back.

PHILIPPA: You got there didn’t you? And I should say at this point, in the show notes attached to the app, you’re going to find links to some of the organisations that Lila has been talking about. I mean, then of course, there is, what are you entitled to from the government? That’s always worth talking about because, as we know, people don’t know and a lot of that stuff goes unclaimed, doesn’t it?

LILA: Yeah, and I think that’s where people like the Money Advice and Pensions Service can really help because they’re part of the government, so they will help to point you in the right direction of any benefits that you’re entitled to. And Citizens Advice, where you can also get really, really great advice from somebody who knows the system, because that can feel quite overwhelming when you’re already feeling a bit embarrassed and shameful. And now you’ve got to navigate a system that isn’t easy to navigate. There are some brilliant organisations out there who can help.

PHILIPPA: Tess, anything you want to add to that?

TESS: No, I would agree with that. There’s so much available and there’s probably quite a lot, I think, that people don’t even realise is available. I also think that it’s about understanding your own situation as well though. I have a spreadsheet that I keep – it has all my regular outgoings. I put in transactions for everything that goes out of my bank account and it does sound a bit over the top, but it does mean that I can always see how much money is still going to come out of my account before payday and how much money have I got left now? And then I know, ‘how much money have I got leftover to spend on the nice things?’

PHILIPPA: And this is why you’re COO at PensionBee, isn’t it?

TESS: I do love a spreadsheet.

PHILIPPA: But actually, it is a good idea, isn’t it? That thing of really understanding what’s going on. And financial education, I mean, we made a podcast about that episode eight, it’s still there, you can stream it, have a listen to that. But it does stress that point about financial literacy. It might not solve your money worries, but it helps you deal with the stress, doesn’t it? Understanding your situation, even if it’s bad, is really, really good. The more you know, the better you can cope.

TESS: Yeah, because I think that money worries cause such panic in us and we don’t know how to react to them. We don’t know how to respond to money worries. People have a real sense of shame around money worries, they don’t want to admit to struggling with their money. And I think the more that you know and understand your own situation, and also what’s available to you out there, the better you’re going to be able to cope.

PHILIPPA: It does seem to me that because everyone is going to be in difficulties, some of that embarrassment may go away. I’m already seeing people a bit more ready to talk about the difficulties than perhaps they might have been even a year ago, because it’s - everyone’s in the same situation to a degree. The degree really varies, but it’s becoming a day-to-day conversation, isn’t it? Money worries, bills.

LILA: I think, culturally, it’s not something we talk about very openly in the UK. It will be interesting to see what happens. But doing podcasts like this, it is a great way for all of us to start sort of making it okay to talk about money. And I think young people are really good at talking about this stuff. I think we will start to see more of it as we all enter into what is a fairly gloomy period ahead. Although I don’t want to try and dwell on that, as you’ve probably learned, I like to put my head in the sand on some of these things.

PHILIPPA: I hear what you say, but the financial jargon really gets in the way doesn’t it? And we are going to make a podcast about this soon, about what all that jargon actually means, because I think it can be a real barrier to people, to actually doing what we’re suggesting they do. But in the meantime, Dennis, everything we’ve talked about, it’s all very well, but it’s time consuming. It’s tough to do it on your own, isn’t it? What mental health support systems can people reach out to if they’re feeling overwhelmed?

DENNIS: Just to top up what Lila and Tess have already said, I think it’s really important that you prioritise things when financial worries start to take a toll. If financial worries are already impacting your mental health, I think it’s really important that you stick with your routine. If you get up at the same time, it will help your mood. I think it’s also important that you stay active, exercise, and you update your CV and you keep on looking for jobs. It’s really important.

PHILIPPA: It’s hard to do on your own though, isn’t it?

DENNIS: Yeah, it is a hard thing to do, but the internet is a fantastic tool and we’ve got lots of resources now. There’s the Royal College of Psychiatrists, they have useful articles about how to deal with your mental health issues, and also the charities Mind, and Shelter. They have excellent toolkits when it comes to managing your own mental health specifically for financial worries.

What changes need to be made?

PHILIPPA: And of course, there is the government. Supposedly there to look after us. We’re recording this early September, we’ve got a new PM. I’d be interested to know what you’d all like to see from her and her cabinet that might ease the situation. Tess?

TESS: I think energy bills feel like a really crucial thing right now.

PHILIPPA: We’re recording this just ahead of the point when we’re expecting to hear a bit about that, but it doesn’t sound like it’s going to solve the problem.

TESS: No, it doesn’t. But for me, that would be the thing that I would want from her right now.

PHILIPPA: Yeah, Dennis?

DENNIS: I think when we’re thinking about money things, we think that the government should freeze the energy bills or put a cap on prices. But we don’t seem to acknowledge that there’s a mental - or there’s a lack of realisation that there’s a mental health aspect to it. It would be good if the government would have something in place to help people who have mental health problems.

LILA: Investing in the National Health system and making sure that we have the necessary resources - coming out of COVID, we already have a world where mental health problems have grown massively. Then I think the last thing is - there’s some bills going through Parliament at the moment, the Online Safety Bill for example, which really starts to look to protect consumers from online scams. It’s really important that those get put through. I’m quite passionate about that.

PHILIPPA: Yeah, some of the stuff we know that’s coming down the road. Now look, we’re almost out of time. Before we go, I’m gonna ask you all for your best practical suggestion for anyone listening to this who knows that their money worries, they’re already putting their mental health at risk. I’ll start with Tess.

TESS: I mean, aside from starting a spreadsheet. I think that the most important thing is to talk to somebody, whether that is the company that sent you the bill, or whether that is someone who can help with government support, or whether it’s just talking to somebody in your family. I think when you carry the burden, it obviously does have a toll on your mental health and that’s when you’re more likely to make bad decisions, so it is like a cycle. So I think I would say, just make sure you’re not dealing with it on your own and talk to somebody.

PHILIPPA: Dennis?

DENNIS: Don’t drink too much alcohol. When we have financial worries, or even without financial worries, it’s easy to turn to alcohol as a way to manage your emotions and pass the time.

PHILIPPA: And expensive.

DENNIS: It’s expensive.

PHILIPPA: Lila?

LILA: I think, really face it, really look at your situation and talk to somebody because sometimes, it may not be quite as bad as you think it is. It may be, but at least then you know, and you can do something about it.

PHILIPPA: It’s starting that journey with a single step, isn’t it? Pick up a bill that you know you can’t pay, call them.

LILA: But I agree about alcohol. I mean, it might feel quite nice at the time, but the impact in the long term is not so good.

PHILIPPA: Yeah, moderation.

DENNIS: It doesn’t drown the problem, it irritates it.

PHILIPPA: Thank you all very much, really useful discussion. Now remember, if you are struggling right now, and you need to talk to someone, call Samaritans on 116 123. They’re open 24 hours a day, 365 days a year. You can text the word ‘SHOUT’ to 85258. That’s 85258. You can speak to a volunteer from Mental Health Innovations there. You can do it entirely anonymously if that’s what you would like best. As we’ve said, the first port of call for any mental health issues, big or small, is your GP. They can connect you with your local NHS Mental Health Trust to support you with any sort of treatment you might need. For links to all the resources and organisations we mentioned in today’s episode, go to the show notes on your app. You can find more links to useful articles from the PensionBee website.

A final reminder that everything you’ve heard on this podcast should not be regarded as financial advice and wherever you invest, your capital is at risk. Next time we’ll be continuing the discussion on money and mental health. We’ll take a look at how to manage your finances when you’re already suffering with a mental health condition. We’d love to hear any questions you have for our expert guests, so please do email them to us. Here is the address: podcast@pensionbee.com. Thanks for listening. Join us again next month on the Pension Confident Podcast.

Catch up on episode 8 and listen, watch on YouTube or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This article was last updated on 04/10/2022

On 23 September, Chancellor Kwasi Kwarteng dropped quite a bombshell with his not-so-Mini-Budget, shaking up the tax rules for millions in Britain. Behind the headline figures sit some need-to-know hidden effects on our pension savings and pension incomes.

1. Lower income tax rates means less in your pension

From April 2023, income tax rates will change. While this will have a positive effect on take home pay, it will have negative effects on pension saving.

The basic rate of income tax (on earnings between £12,571 and £50,270) will be cut from ^_basic_rate to ^{_corporation_tax_small_profits} from April 2023.

According to HMRC, these are the changes we can expect to see in real terms. The reduction in income tax to ^{_corporation_tax_small_profits} in 2023 will mean 31 million basic rate taxpayers will benefit with an average gain of £170 in 2023/24. Those in the higher rate, and additional rate tax band will benefit from an average gain of £360. This impacts pension savings because pension tax relief - the bonus pension savers usually receive from HMRC on their personal pension contributions - is added on at the marginal rate of tax. So when the rate of income tax falls, so does the amount of tax relief on pensions.

It looked as though the ^{_additional_rate} additional rate of income tax (on earnings above £150,000) was going to be scrapped altogether, falling to the next bracket at ^_higher_rate. However, 10 days after the announcement on 23 September, the government made a u-turn, deciding not to proceed with cutting the additional rate of tax for the UK’s highest earners.

What does this mean for me?

For most basic rate taxpayers this means that the tax top up they’ll get on their pension contributions will fall from ^{_corporation_tax} to around 23%.

In real terms, this means from April 2023 a basic rate taxpayer would have to make an £81 contribution to get £20 in tax relief from HMRC, so £100 goes into their pension. Before the changes, they would only need to pay £80 into their pension to get the extra £20 in tax relief.

Relief at source

For basic rate taxpayers saving in ‘relief at source‘ (RAS) pension schemes - where basic rate tax relief is added automatically - there will be an extra year during which they can continue to receive tax relief at ^_basic_rate. Here at PensionBee, we use ‘relief at source’, meaning our customers will benefit from this additional year of tax relief at ^_basic_rate.

It’s less clear for those in ‘net pay’ pension schemes - where contributions come straight from pre-tax pay - but they’ll presumably receive ^{_corporation_tax_small_profits} tax relief from April 2023 onwards.

“Maintaining a one-year transitional period for pension savers to continue to claim tax relief at ^_basic_rate on contributions, should make pension contributions more affordable.” – Romi Savova, CEO of PensionBee

Pension carry forward rule

Pension savers can also use carry forward to make the most of their contributions. Under the current rules, most savers can contribute up to £40,000 to their pension each year and receive tax relief. If you reach the £40,000 allowance in one year, you can carry forward any unused annual allowances from the past three years.

It’s important to be mindful that, with the carry forward rule, you can’t claim tax relief on contributions in excess of your earnings in any tax year.

2. Lower pension contributions could mean a smaller pot and less retirement income

Changes to income tax rates that result in lower pension contributions (as explained above) will result in smaller pension pots, and less retirement income over time. This is because of the power of compound interest, where long-term incremental investments snowball over time, with growth building on growth.

What does this mean for me?

Calculations by Scott Gallacher, an Independent Financial Adviser, take the example of a 40 year old basic rate taxpayer earning £40,000 a year and contributing 1^{_personal_allowance_rate} of their net pay to a defined contribution pension. They’re likely to find their pot will be worth £1,465 less in today’s money at age 65, as a result of the announced reduction in tax relief.

For those who are younger, with longer to save, the impact is even greater. Someone aged 22 on a salary of £40,000 and just starting to save into their pension - also paying in 1^{_personal_allowance_rate} - would see their pot hit by around £2,229 in today’s money.

However, this doesn’t have to be the case. In order to avoid a reduction in your pension pot and retirement income, savers may wish to consider contributing more to their pensions where possible. In the current cost of living crisis, this is likely to prove difficult for many, but those who are able to, may want to consider using the money saved by paying less income tax to boost their pension contributions.

“The measures introduced make the cost of living more affordable for many, including keeping savers on track with pension contributions, when they previously may have considered pausing their contributions or opting out of workplace pension schemes.” – Romi Savova, CEO of PensionBee

3. ISAs may look more attractive

The benefits of tax relief make pension contributions a great way to save and invest for the long term. The same is true of ISAs, which also grow free of tax. Money withdrawn from ISAs is also tax-free, making them an attractive addition to pension plans.

What does this mean for me?

Lifetime ISAs

For basic-rate taxpayers, the cut in tax relief to ^{_corporation_tax_small_profits} will mean Lifetime ISAs (LISAs), which continue to offer a savings bonus equivalent to ^_basic_rate tax relief, will become more attractive. Anyone aged 18-39 can open a LISA and use it to buy their first home, or withdraw it as part of pension savings from age 60.

Other ISAs

The Bank of England increased interest rates by 0.5% to 2.^{_corporation_tax} on 22 September, the highest level since 2008, with three monetary policy committee members voting for a larger hike of 0.75% that could still arrive in November. At the time of writing, The Bank of England have responded to the crash in the Pound by saying they won’t hesitate to change interest rates as and when needed.

The £45 billion of government borrowing to pay for the tax cuts in the Mini-Budget could push interest rates up even further. Higher interest rates will mean many savers face paying income tax on their savings for the first time in over 10 years.

With best buy savings rates now above 3%, it’s a real possibility a basic rate taxpayer with £30,000 of savings will start to pay income tax on the interest they earn above the ^{_basic_rate_personal_savings_allowance} personal savings allowance – unless that money is invested using an ISA.

For higher rate taxpayers the allowance is halved, so only the first ^{_higher_rate_personal_savings_allowance} of interest is free of income tax. The ISA allowance means every adult can save ^{_isa_allowance} each year without paying tax on the gains.

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4. Dividend income boost

Self-employed company directors, who mainly pay themselves in dividends, and investors who invest in dividend paying companies outside of their pension or ISA, both received a boost in the Mini-Budget, as dividend tax cuts were announced.

The highest rate of dividend tax will be cut from 39.35% to 32.5% from April 2023. The 1.^{_corporation_tax} surcharge on all dividend rates will also be scrapped from 2023/24. In particular, given the self-employed typically have less saved into their pension, this tax cut could be an opportunity to help them to save more.

What does this mean for me?

For those living on and saving from dividend income (in addition to salary and pension income), the Mini-Budget changes give a boost.

Abolishing the highest rate of dividend tax will only benefit those earning over £150,000 a year, who’ll see their dividend tax rate cut from 39.35% this year to 32.5^{_personal_allowance_rate} next year. This represents an 18% reduction in the rate of tax these investors and company directors will pay.

More widely, company directors, including the self-employed and contractors, who pay themselves via company dividends in addition to salary, will benefit from the tax cuts. Someone receiving £40,000 of dividends a year will save £475 as a higher-rate taxpayer, and £2,603 as an additional rate taxpayer in 2023/24 (compared to this tax year), according to calculations by Scott Gallacher, an Independent Financial Adviser. For basic rate taxpayers, the saving is up to £349.

Those taking ^{_money_purchase_annual_allowance} of dividends a year will be better off by up to £100 for basic rate and higher rate taxpayers, and £548 for additional tax rate payers.

Retail investors outside a pension or ISA - individuals who buy and sell through a brokerage firm or savings account - will see a lower tax bill if their dividends are over the annual dividend allowance of ^{_tax_free_childcare}. To be in that position, they would have to have a portfolio of over £50,000 if it was yielding 4% a year.

Laura Miller is a freelance financial journalist.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Liz Truss has been named the UK’s new Prime Minister. And whilst the vast majority of the country didn’t get to vote on the decision, households across the country will want to know how the new boss in Number 10 will affect their finances. She has an avalanche of issues to deal with as she takes office - with sky high inflation and unmanageable energy bills threatening to blow a hole in individuals’ budgets.

The bulk of Conservative party members skew older, so Liz has been keen to stress her support for pensioners. However, with the current economic climate, those still saving for retirement are being forced to cut back on pension contributions, or stop altogether. Liz has pledged to lay out her plans to tackle the rising cost of living within her first week in office.

Here is what we already know about the new Prime Minister’s tax and spending intentions.

Liz Truss on pension plans

State Pension protection

Liz Truss has promised no changes to the triple lock - that the State Pension will once again rise by earnings, inflation or 2.5% whichever is higher, every year. After last year’s switch to a double lock, pensioners were concerned the move would be made permanent. But with a new government in charge, this looks not to be the case.

With inflation at record highs, those in receipt of the State Pension are in line for bumper increases to their incomes. September’s inflation figure will be the one to look out for, with the Bank of England predicting a peak of 13% at some point later this year. At that rate, the basic State Pension would rise by £18.45 to £160.30 per week (£8,335.60 per year) in April 2023. The new State Pension would increase by £24.10 to £209.25 per week (£10,881 per year).

Annuity rates up

Annuity rates could rise under a Liz Truss Premiership. An annuity is a regular yearly payment you can buy in exchange for some or all of your pension pot. The annuity rate is how much an annuity will pay out each year. Annuity rates are linked to what’s called the yield on government bonds, also known as gilts. Higher interest rates mean higher gilt yields, and higher annuity rates.

Market watchers predict Liz Truss’s tax and spending plans will keep inflation high and put further pressure on the Bank of England to raise interest rates to try to bring inflation down. The Bank of England has already raised interest rates several times this year, and this has led to higher annuity rates. Annuity rates are still low by historical standards, however. It’s worth noting that when buying an annuity, this can’t be reversed so it’s important to think carefully if it’s right for you before doing so.

Pension transfers down

Defined benefit pension transfer values could fall with Liz as PM. This too relies on predictions that inflation will be sent higher by Liz’s tax and spending plans, forcing long-term interest rates (set by market expectations more than the Bank of England) to rise. A defined benefit transfer value is the lump sum you get for leaving a defined benefit pension scheme instead of staying in and receiving regular payments.

Transfer values are linked to government bond, or gilt, yields. When interest rates and inflation are low, gilt yields are low, and pension transfer values increase. But when there’s a belief higher inflation is on the horizon, like now, and interest rates and bond yields rise, pension transfer values fall so you get a smaller lump sum.

If you’re considering a pension transfer, you’ll need to get advice from a qualified pension transfer specialist if your pot is worth more than £30,000.

Liz Truss on taxes

National Insurance cut

Liz has signalled she would reverse the 1.5% National Insurance hike that was introduced this April to help pay for spiralling care costs in the future, to instead help ease the cost of living crisis happening now. If this goes ahead workers will find a bit more in their pay packets, which could persuade those thinking about opting out to stay in their company pension scheme (a smart move).

But Liz will need a new plan to deal with the cost of caring for Britain’s ageing population.

VAT cut

A potential cut to VAT from ^_basic_rate to ^_ni_rate is another plan to help individuals struggling with the cost of living. Some experts have warned it could add further to inflation, however, adding, rather than easing, the burden on people struggling with higher prices.

Inheritance tax review

Liz Truss has pledged a review of the current tax system, which includes inheritance tax (IHT). Nothing specific has been promised here yet, just the potential for more tax cuts further down the line.

Any changes to IHT rules would likely take some time to put in place, but be prepared to make changes to your financial plans if IHT rules improve in your favour.

Key pensions points

• State pension triple lock will remain in place
• Annuity rates could rise further
• Defined benefit pension transfer values could fall

Laura Miller is a freelance financial journalist.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in August 2022?

Pensions are invested in global stock and debt markets, and therefore what happens around the world will also be felt in our pensions. September saw the continuation of the domino effect created by the international energy crisis and the ongoing war in Ukraine. The combination of low energy supplies, and high demand for them, has pushed prices upwards. These costs are passed from business to consumer, making the cost-of-living higher and increasing wages, which in turn leads to higher demand for goods and higher prices. In short, a vicious cycle that the world’s central banks have sought to break through rising interest rates.

Of course, rising interest rates themselves can cause a lot of turmoil for businesses and households by increasing the cost of borrowing and reducing expenditure. This in turn reduces inflation (by reducing the demand for goods) but can simultaneously lead to business closures and job losses, which September continues to bring news of. At the same time, rising interest rates reduce bond prices, meaning diversification of pension assets is less effective in the short-term.

Keep reading to find out how markets have performed this month, and how this may impact your pension balance.

What happened to stock markets?

Company shares are traded on stock markets, and their value’s influenced by all sorts of factors, including: a changing political climate, business performance, interest rates, local and global economies and the rate of inflation.

September marked a subsequent chapter in this year’s unfolding story of market volatility. Uncertainty over measures taken by central banks to combat inflation (interest rate rises), along with the energy crisis, has clouded any optimism for an imminent recovery.

In UK stock markets, the FTSE 250 Index fell by over 1^{_personal_allowance_rate} in September, bringing the year-to-date performance close to -29%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index fell by almost 6% in September, bringing the year-to-date performance close to -24%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index fell by almost 8% in September, bringing the year-to-date performance close to -24%.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index fell by over 12% in September, bringing the year-to-date performance close to -26%.

Source: BBC Market Data

What happened to currencies?

Currency is a system of money commonly attached to an economic region or an individual country. For example, in the UK our currency is pound sterling. As currencies fluctuate in value they’re often phrased as being ‘strong’ or ‘weak’, compared to others. Exchange rates are those points of comparison, as you move money from one currency to the equivalent buying power in another.

September saw pound sterling fall by almost 5% against the Euro, by almost 4% against the Japanese Yen and by almost 8% against the US Dollar. This reflects the UK’s weaker economic outlook, as inflation is hovering at 9.9%. In reaction to the rise in inflation, the Bank of England raised interest rates to 2.^{_corporation_tax}. There’s speculation about further rises in coming weeks, at time of writing.

Customarily funds, such as pensions, invest internationally as part of diversification, the approach of spreading your investment eggs in more than one basket. Chances are many UK investors hold more of their retirement wealth in US companies than UK companies. Therefore, it’s possible to have benefited from a falling pound in your pension.

However, if you’re close to retirement or if your fund manager uses ‘currency hedging‘ as a way of reducing volatility, you’ll be protected from negative currency moves on your overseas investments (such as a weakening of the US Dollar), but also won’t benefit from positive ones (such as a strengthening of the US Dollar).

You can read our blog, The pound and its impact on pensions, to learn more.

What happened to bonds?

Bonds are basically loans given by investors to companies. In exchange for their funding, the company usually pays investors fixed interest on the bond amount before repaying it in full. Bonds have different characteristics (like mortgages) from their interest rates to their term length. There are two types of bonds: corporate and government.

Like many fixed income assets, bonds thrive on market stability as they aim to provide moderate growth for investors. Recent surges in inflation and rising interest rates have pushed bonds between the proverbial rock and a hard place - leaving investors understandably concerned. While asset classes such as company shares are used to the ups and downs, bonds have been relatively sheltered from volatility until this point.

At the time of writing, the S&P Global International Bond Index is reporting over 3^{_personal_allowance_rate} losses this year alone. The downside is obvious; investments that are bond-heavy will have seen dramatic losses. Bond’s haven’t seen losses this severe since back in 1865. Since 1939, when the Great Depression ended, the bond market has created annual returns of approximately 5%, overtaking the rate of inflation by a slim margin in most years.

The upside is that hopefully we’ll recover some or all of these falls in the medium-term, and not see double digit losses like we currently are for another 200 years, give or take. Many pension funds will be diversified, including investments in bonds and shares. It’s impossible to completely isolate your retirement savings from the wider economy - even investing in cash means you could lose value due to inflation.

You can read our blog, How does inflation affect pensions?, to learn more.

Summary

We’re currently in a bear market (a period of economic decline). The good news is global markets have recovered from every bear market in history, without exception. Moreover, the value of company shares has not only recovered but typically goes on to reach new highs. Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the coronavirus pandemic struck markets in 2020.

As a general rule of thumb, when markets are down company shares become more affordable to investors. For example, if you buy company shares during a downward trend at £1 per share, then when markets recover and they increase to say £1.50, you’ll have seen a 5^{_personal_allowance_rate} increase on your initial investment. Of course, there’s no guarantee that this will happen, but if you’re able to, then adding to your pension pot could allow you to effectively grow your pension in the long term.

You may find yourself rethinking your pension savings during the cost of living crisis, or worrying about whether you’re making the right choices. PensionBee customers can rest assured knowing that our pension plans are being managed by some of the world’s leading money managers. Again, it’s worth remembering that it’s normal and expected for pensions to go up and down in value. If you’re over the age of 50 and are considering your retirement options, you may benefit from a free Pension Wise appointment. You can book your appointment online.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in October 2022?

Have a question? Get in touch!

You can check out our Plans page to learn how your money is invested in different assets and locations. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This article was last updated on 27/02/2025

Debt is a universal problem. In fact, the average UK household debt in November 2024 was over £193,000. While this figure takes into account things like mortgages, it also includes unsecured debt too, such as credit cards and personal loans. With the rising cost of living, organisations like the Financial Conduct Authority (FCA) and MoneyHelper are urging consumers to get help as soon as possible if they’re struggling financially.

Unfortunately, there continues to be a lot of stigma, shame and embarrassment when it comes to talking about debt and, more importantly, seeking help to deal with it. And with mental health problems being so closely linked to debt, it can be even harder for people to get the help they need.

According to the Money and Mental Health Policy Institute, people with experience of mental health problems are three and a half times more likely to be in ‘problem debt’. The term problem debt is used when individuals who are in debt are simply unable to afford their repayments. On the other hand, being in problem debt can sometimes cause mental health problems by driving feelings of anxiety, shame and depression and so it turns into a vicious cycle.

Senior Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “Avoidance is a common coping mechanism for people with anxiety which makes it hard for those people to reach out when they are struggling financially.”

What can be done to break this cycle?

1. Actions for individuals to take

Reaching out and speaking to someone is a great first port of call when it comes to sharing the burden of debt. For some people, this can be a very difficult step to take so in the meantime, there are online resources that can support and show individuals what help is available when it comes to managing their debt. Citizens Advice and Turn2Us both have a range of resources including tools to calculate what benefits you might be entitled to.

Senior Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “There is a concern that it will take forever to check your eligibility but these tools are designed to make it easier for people to use and the information is provided in a way that people can easily understand.”

2. Awareness and understanding in the wider infrastructure

Understanding the link between mental health problems and financial difficulty is important, and this is even more true within organisations that are in place to support people who are suffering. Chris believes frontline healthcare workers, like GPs, need to recognise the financial impact of mental health problems. In some cases, a financial strain like debt might be the driver of their patient’s illness, so signposting to resources and organisations that can support is crucial at this stage.

Senior Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “When people are getting treatment for mental health problems, there needs to be an understanding of how that can impact their finances.”

3. The role of creditors

In the same way that organisations supporting people with their mental health should be aware of financial difficulty, organisations, like banks and other creditors, should also be aware of the impact debt can have on people’s health. Chris believes clear and supportive communication from creditors is crucial to helping people overcoming debt. One-in-five individuals who are in debt feel dread when opening bills and letters, so ensuring creditors are well trained to communicate in a non-threatening way is something the Money and Mental Health Policy Institute think is an essential step.

Senior Research Officer at Money and Mental Health Policy Institute ; Chris Lees says: “People often have more than one debt, so they’ll be receiving letters from different creditors and even if one has a really good standard of communication and they only turn to bailiffs as a last resort, for the other six or seven creditors that people are having to deal with, that might not be the case.”

Where to get help now

If things are starting to get on top of you, mental health charity Mind recommends six ways you can manage your money and mental health, from speaking to someone you trust to understanding your money habits. Find out more on our blog.

If you’re struggling with debt, MoneyHelper offers lots of information to support you and help get your finances in order. These include planning how to tackle your debts and speaking to a free debt adviser

MoneyHelper are also on hand to give free, expert debt advice whether you need help with prioritising bills or support with living on a smaller income. The service is government backed.

In episode 10 of The Pension Confident Podcast, Philippa Lamb is joined by Senior Research Officer at Money and Mental Health Policy Institute; Chris Lees and Chief Operating Officer at PensionBee; Tess Nicholson as they discuss the effects of debt and what to do if you find yourself in it. Listen, watch on YouTube, or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Anything discussed on the podcast should not be regarded as financial advice.

The following is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 10, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Hello and welcome to episode ten of The Pension Confident Podcast with me, Philippa Lamb. Last month we spoke about what to do if you’re worrying about money. This time, we’ll be looking at what you can do if you are already in debt and how that can affect your day-to-day circumstances.

Music starts

We’re all seeing the domino effect created by global and national events on our finances. True, our energy bills are now capped, but they’re still a lot higher than last year. And of course, everyday life events will always be a factor in our finances. You may be out of work, about to retire or going through a divorce. So today we’re going to hear listener stories about their own debt struggles and we’re joined by two experts to talk about coping strategies. First meet Chris Lees, who’s a Research Officer at the Money and Mental Health Policy Institute. Hello Chris.

CHRIS: Hi. It’s good to be here.

PHILIPPA: And welcome back to Pension Bee’s own COO, Tess Nicholson. She was with us for the last episode. Lovely to see you again, Tess.

TESS: Nice to be back.

PHILIPPA: Before we start, the usual disclaimer, anything discussed on this podcast should not be regarded as financial advice. And remember when investing your capital is at risk.

The effects of debt

Now last month, as I said, we talked about how money worries can affect anyone’s mental health. We know that a lot of people who haven’t had to worry too much in the past are now watching their spending really carefully because they’re worried about getting into debt. Now given the current economic situation in the UK and that reality that more and more people may be fearing sliding into debt, is there anything that you two are doing to keep debt at bay right now?

CHRIS: Definitely, when going into the supermarket, thinking about the more expensive things and asking do I really need to be buying that? Probably makes sense just to be buying, you know, the basic versions.

PHILIPPA: Own brand.

CHRIS: Yeah, exactly. But also just, you know, do I need to be going to a restaurant this week so you know, I can eat in instead. And obviously these are the kind of things that I need to be doing, but lots of people at the moment, you know, are facing much harder choices. So for a lot of people right now, yeah, it’s a really difficult time.

PHILIPPA: Yeah, and it’s hard isn’t it, because I mean some spending you have to spend on, because I’ve been thinking about this with things like travel costs, trains, planes, that sort of thing, booking months in advance to keep the cost down. So I mean, and I have to say that is not something I was doing before. What about you Tess?

TESS: Yeah, I mean food I think is one thing, you know, that I’m keeping an eye on. I work from the office five days a week pretty much, which lots of people don’t now. But there’s obviously a temptation there to go out and buy your lunch. And so, you know, trying to think a bit more carefully about things like that is one of the things I’m doing.

PHILIPPA: Packed lunches.

TESS: Yeah, exactly.

PHILIPPA: Yeah because we were talking about this certainly before the recording - that thing of having notifications pop up on the screen of your phone every time you swipe for a coffee or a sandwich.

TESS: It’s a reminder.

PHILIPPA: It is, isn’t it? It makes you think.

TESS: Yeah.

PHILIPPA: I do that. Well as I said in episode nine, we spoke about the link between money worries and the effect that can have on your mental health. So, if it’s beyond the point of concern and you’re actually at the point where your money struggles have gotten the better of you then, I mean Chris surely that must put an even bigger strain on your state of mind. What kind of concerns are you coming across at Money and Mental Health?

CHRIS: Well, definitely, yeah, that’s something that we come across so much. So people who are in problem debt, where people are seriously behind on credit agreements and bill payments - nearly half of those people have a mental health problem. So there’s definitely that connection there and being in problem debt can drive these feelings of anxiety, depression, and then this feeling that it’s your fault. I think a lot of the time there’s this stigma around problem debt. So there’s this belief that it’s the individual’s fault, whereas there’s obviously a lot of different factors that are at play in society and the economy, etc. But that means that people really struggle to talk about it, whether that’s with their friends and family or then actually seeking help from different organisations or actually speaking to their creditors. And there’s also this other challenge where people are often getting quite difficult communications from their creditors. So, maybe aggressive debt letters or their phone ringing constantly.

PHILIPPA: Really frightening.

CHRIS: Exactly. And even things like bailiffs turning up at your door. That’s really difficult for people and they often don’t know what to do about it. And that just drives these feelings and unfortunately there is a connection between problem debt and suicidality. People in problem debt are around three times more likely to have thought about suicide in the last year. And unfortunately around a hundred thousand people in England per year have tried to attempt to take their own life if they’re in problem debt.

PHILIPPA: Yeah, I mean, as you say, it’s a vicious spiral, isn’t it? But how do we break that cycle?

CHRIS: Well that’s a really great question. There are obviously things that individuals can do, but I think I’ll focus more on what is needed from the wider infrastructure. One of the things is raising awareness of this connection between mental health problems and financial difficulty. So for example when people are getting treatment for their mental health problems, it’d be really great if there was this understanding for people about how that can impact their finances. But also then if doctors and medical professionals then spot that maybe it’s actually a financial driver that they can then be signposted or offered support and guidance so that they know where to turn to. And then I think on the other side of that is the role for creditors. So, make sure that the letters you’re sending out - that the creditors are sending out - that they’re clear, that they’re easy to understand, that they’re supportive, that there are links to where people can get support from and it’s easy for them to get in touch. But also, then there’s the training for frontline staff. Because obviously a lot of people who are struggling with their finances will also be struggling with their mental health. So when they’re ringing up they’re probably distressed and often maybe, they might get a bit angry because they feel like they’re not being understood.

PHILIPPA: Yeah.

CHRIS: So if frontline staff have this training to recognise, you know, there is this connection and they know what to do. That would be really great.

PHILIPPA: I mean, Tess, you mentioned last time I think that you’ve been hearing from customers at PensionBee, they’re worried about the cost of living crisis, the impact of all that market volatility on the value of their pension pots and how that’s affecting them. But what effects can already being in debt have on your ability to save for the future? Because I mean, the two must be connected.

TESS: Yeah, I mean I think, the one thing that you might imagine could happen is that people stop contributing to things like pensions. Actually what we’re seeing at PensionBee at the moment is that we’re not seeing a drop in contributions, which is promising.

PHILIPPA: Yeah.

TESS: I’m hopeful. I think hopefully that suggests that people are valuing their pension as a tool to support them in later life. But that’s something that could happen, somebody might decide, well that’s the thing I’m gonna stop putting money into. And, obviously the impact of that then is that you don’t have that money growing alongside you and, and you increase the risk of being in difficulty in later life. And then the other thing that we are seeing is an increase in people looking to withdraw from their pension before the age of 55, which is when they’re allowed to withdraw money.

PHILIPPA: Yeah. And you can’t do that can you?

TESS: No, you can’t do that apart from in very special circumstances. But yeah, you know, people are obviously wanting to do that and you want the money to stay in there as long as it can so that it has more opportunity to grow. So yeah, it can definitely have an impact on those kinds of savings.

PHILIPPA: Well for today’s episode we wanted to hear from you, the listeners on how you are currently coping financially. So before our recording, PensionBee reached out to its customers on social media and they asked people about their experiences with debt. So Tess, what sort of responses did you get?

TESS: The headline number is that 83% of respondents said that they had experienced debt at some point in their life.

PHILIPPA: It’s a big number. Is it higher than you thought?

TESS: It is very high, but I think it just goes to show what a universal problem it is, and I think we’ve talked a little bit about the shame that people feel around debt and I hope that hearing that number helps some people to recognise that it’s not your fault. It’s gonna happen to most people and it’s not something to be ashamed of. The biggest reason people gave for getting into debt was credit cards.

PHILIPPA: Right.

TESS: Personally, I’ve experienced what it’s like to use a credit card in my life and obviously it can be something that you sort of have there as a fall back. And so that can almost encourage you to think, oh it’s okay, I’ve got my credit card there. We also had over 50% of people tell us that they were concerned about going into debt this winter.

PHILIPPA: That’s a big number too.

TESS: It’s a really high number. And the things that people were particularly worried about were, unsurprisingly, the cost of energy and also groceries. So it’s such a universal thing - we all have to heat our homes and we all have to eat. So, these things are affecting everybody and we really saw that in the survey.

PHILIPPA: I mean Chris obviously we are talking about the current cost of living issue, but what circumstances do you see coming up most frequently from people when they, when they get in touch with you.

CHRIS: So we hear a lot from people who are struggling with their mental health. We find that common symptoms can often impact this ability to manage spending. So for example, when people are unwell, they might have difficulty processing information, they might struggle to control their impulses, but also things like memory problems. So this can make it really difficult for people to keep track of what they’re spending and make sure they’re getting the best deals. It can then be really hard for people when they’re unwell to then seek help and things like low motivation, low energy. But also avoidance is a common coping mechanism for people with anxiety and other associated conditions. So that could be really hard for people to then reach out.

And if you’re thinking then about people who are really struggling with their mental health, so maybe they’re in crisis support care, we often find this is where there is that worse financial impact. Because people just really can’t manage their finances. They might go into treatment and come out and find out they’re massively in debt now because they’ve just not been able to deal with that. Another common thing is that we know that people with mental health problems are often more likely to be on lower incomes.

PHILIPPA: Yeah. It’s quite closely correlated.

CHRIS: Definitely. Yeah. And we find that for people with common mental disorders, which might include things like anxiety, there’s a mental health income gap of around £8,400 on average. So that’s pretty significant and there are lots of different reasons for that. So for example, people might struggle to stay in full-time employment so they might turn to part-time work. But then lots of people might not be able to work. So then they have to rely on benefits which often really haven’t kept pace with increased costs. So lots of people then find it really hard to afford the essentials, which means then that’s how people can start to turn to credit and then they can struggle to afford the credit and they then get into debt.

Other things often I think you mentioned earlier about life events, that’s something that we hear about where people may be going through bereavement or divorce.

PHILIPPA: Yeah. I mean they just keep on happening, we don’t hear much about it.

CHRIS: Definitely. Yeah, well that’s, yeah as you said, that’s still ongoing and there’s the financial impact so maybe loss of income or whatever it is. But then there’s the impact on their mental health. But then there’s the final thing, just the cognitive overload that people have where there’s a lot going on, so being able to actually stay on top of your finances at the same time, that’s so difficult for people. And you mentioned the cost of living, that’s definitely something that is a real concern. So when we did polling recently around three quarters of people said they’ve had to make a change due to the cost of living crisis already.

PHILIPPA: Already?

CHRIS: Yeah. But then people are turning to credit to pay for essentials. So around half of people said they’re anxious about the cost of living crisis. But also one in five said they felt dread when they were opening letters from their creditors.

PHILIPPA: That’s sad isn’t it?

CHRIS: Exactly. And that then drives the feeling that this problem is too big.

PHILIPPA: There’s too many parts to it.

CHRIS: Exactly. Yeah, there’s just lots going on.

Customer stories

PHILIPPA: Look, let’s hear some personal stories from PensionBee customers who’ve very kindly given us permission to share them with you. You’ll understand we’re keeping their names anonymous. So the first customer told us…

CUSTOMER 1: The cost of living crisis has definitely impacted me. Unfortunately my last job ended in January this year, so for the first four or five months I was out of work and as my partner’s a teacher, we can’t claim any benefits. It’s been really difficult. We’ve had to cancel holidays we had booked pre-covid to try and get that money back to pay our bills. We’ve no spare money for going out and we’re cutting back on what we’re able to buy.

PHILIPPA: So you know, this couple, they were fine and then they suddenly found this year that their finances are just nowhere near as stable as they previously were. They’re clearly worried about getting into debt and they will not be alone with that, will they? Lots of people who thought it was fine, suddenly it’s not fine.

CHRIS: Oh, definitely. I think the mention of cutting back on the different spending and one of them was holidays. Now, holidays can be something that’s really great for people’s mental health and yeah definitely, a lot of that spending is stuff maybe when you’re socialising and that can mean spending less time with friends and family again, things like isolation can then make it harder for people with their mental health and then that just drives these feelings. When people get into that situation it can be scary but there are lots of organisations out there who have advice that people can turn to if they need to. But definitely when you first face those kinds of situations, it can be really scary.

PHILIPPA: Tess, your customer spoke about not having any money to spare, it must be really difficult to even think about saving in that situation.

TESS: Yeah, it is. Lots of people will obviously be considering the different places that they can cut back. I mean we would always say, you know, with pensions that, if you can try to keep contributing, even if you cut down the amount that you contribute, that can help keep your pot growing. Yeah and also just keep up the habit really because if you stop it altogether, starting again is quite tough.

PHILIPPA: Yeah. I mean Tess you say even if it’s a tiny amount, which seems like almost a waste of time to be saving it, this is where compound interest comes in isn’t it? Even a tiny amount gets bigger.

TESS: Yeah. You know, if you’re not gonna retire for 20 years, then even if maybe you’re contributing £20 a month and you cut that down to £5 a month, that £5 has got 20 years to grow and help provide you with a bit more support and income when you do reach retirement.

PHILIPPA: It’s mentally reassuring in a way, isn’t it, to know it’s there.

TESS: Yeah, I think it is.

PHILIPPA: I mean, Chris thinking about solutions, lots of us are not claiming the benefits and payments we’re entitled to. This is, I mean this has always been the case, hasn’t it? And right now people really need to know what they’re entitled to, don’t they? What is the easiest way to find that out?

CHRIS: Yeah it’s such a big problem because like you said there’s, there’s a lot of financial support out there for people but people just don’t know about it. And unfortunately at the moment there’s so much placed on the individual to try and work out where to go. But there are some great organisations you can turn to. So for example, Citizens Advice, they have a lot of information on their website about eligibility for benefits, but also other kinds of financial support and how you can access that.

PHILIPPA: I think especially if you haven’t claimed benefits before, or not claimed benefits for a while, the idea of trying to find out where you’re entitled to, it’s really daunting isn’t it? Cause you thinking I’m gonna have to wade through some government website and it’s gonna take half a day. But actually it’s not is it? Because I looked at some of these benefit checkers, it’s like a 10 minute job, isn’t it?

CHRIS: Yeah. I think there is that, that concern that it will take forever and that’s understandable. But these tools are quite simple and often the information they provide is in a way that people can easily understand.

PHILIPPA: It’s interesting you talked about Citizen’s Advice because I was reading some of their reports earlier in the week and they were saying that they’ve seen a 60% increase in helping people with crisis debt this year already.

CHRIS: I know it’s quite scary and we work quite closely with other debt advice organisations and speak to them quite a lot and yeah, the amount of support they’re having to give is really large and often it’s things like energy support where they were supporting people in the summer. Whereas normally this is an issue that we see in the winter when people are worrying about energy costs because obviously it’s so cold but this was something in summer. So yeah, it’s very scary and I think and then there’s the pressure on their staff and their ability to meet this demand.

PHILIPPA: Let’s hear another story from a customer. This one really shows that extra layer of difficulty that we’ve been talking of having a mental health condition as well.

CUSTOMER 2: A few years ago I became incredibly unwell due to a decline in my mental health and as a result had no job, I had no money to pay bills, therefore had to rely on help from my family, who could barely afford it themselves. I was denied benefits after a personal independence payment assessment due to the fact I had taken myself to the interview on the train. This was despite the fact I was having suicidal thoughts at the time. I felt the assessor wasn’t necessarily qualified to make that decision and as a result I was forced to apply for Jobseekers Allowance despite being in no condition to work.

PHILIPPA: Now Chris, it’s a terrible story isn’t it? I mean, looking for work when you’re suffering from mental health problems. It’s a horrible combination, but it’s true, there will be times when people simply aren’t well enough to do that, aren’t they? I mean, what advice do you give to people if the system is forcing them to seek work when they just don’t feel mentally capable of doing that?

CHRIS: I mean that is such a common thing that we come across and mental health problems can affect people in different ways and they can vary in intensity. And for some people they might go for periods where their mental health means they’re able to work, other times, there might be short periods where it’s just too hard for them.

For other people, it might be longer-term where they struggle to work. So there are three groups of people; people who obviously can’t work, people who can work, but they have to work part-time because they’re managing their mental health whilst trying to find work and, there are some people who can work full-time. And we do find in our research that people with mental health problems are more likely to be in receipt of benefits, especially if one’s more related to health. And one thing we want to see is more training for frontline DWP staff so that if people come to say that they’re struggling with their mental health and it means that they can’t work, that there is that understanding of how it impacts people.

So hopefully we’ll get into a place where people can feel free to come talk about their mental health. And also then when they’re approaching employers, we often find there’s this feeling that if someone has gaps in their employment history, which is due to mental health, that there is almost like a bit of discrimination going on there.

PHILIPPA: Still?

CHRIS: Still, exactly. Yeah. So hopefully employees will have more training there and more commitments to support people with their mental health and things like flexible working. But like I said, you know, for people in this situation who’re trying to work out where to go, and what your rights are is one of the crucial things. But again, it’s left to the individual so that’s just really difficult. There are ways that people can get that support whilst claiming universal credit, but it’s not a really great system at the moment. So one of the things we’re calling for is for that system to be easier.

PHILIPPA: Are you?

CHRIS: Yeah. So there is a system in place but it’s quite complicated to find and complicated to use. So we’ve called on the DWP to make that a bit easier. It’s something that is relatively simple when you’d think because you know, it’s, we’re not necessarily asking for them to completely change the way it’s done. Just make it easier for people to get that support.

PHILIPPA: Do you think you’re getting much traction with that?

CHRIS: Well we were starting to make a bit of traction. We were speaking to officials and ministers and it did seem that we were starting to make traction and then obviously there was a slight change in government and things started to happen there. So I don’t know where we’re at at the moment with that.

PHILIPPA: So, you have to start all over again with new people, do you?

CHRIS: Pretty much, yeah. And actually it’s quite, well I say it’s funny.

PHILIPPA: It’s good you can laugh.

CHRIS: We were about to launch a report on levelling up. So looking at where you live and how that impacts your money and mental health and then that was when a lot of the resignations happened. So we were like, oh there’s no one actually left it in the department to make these recommendations to. So that was a bit of a difficult period for us.

PHILIPPA: Yeah, because obviously benefits are being discussed at the moment aren’t they?

CHRIS: Yes. Well obviously yeah, there’s a lot in the news about it and whether they’re going to rise in line with inflation.

PHILIPPA: Which, presumably, you definitely want them to?

CHRIS: Yeah because obviously as I said, one of the big drivers for lots of people who struggle with their mental health is low income. And so if costs are rising and people are really struggling to make those costs, the money they’re receiving, we think that should be rising in line with that.That would be something that would make a big difference.

But things like, having an adequate Statutory Sick Pay system, and things like support for people when they’re struggling with their mental health earlier so that their mental health gets better so that they’re able to progress through work. That’s if they’re able to work. And then you know, things like flexible working by default, that would be something that would be really great. Cause we know that’s really important for people. So, these kinds of blunt instruments often don’t necessarily have the desired impacts because as you said, they don’t really take into account people’s lives and there’s not necessarily nuanced thinking around it.

PHILIPPA: It sounds like you feel that there should just be more compassion in the system?

CHRIS: Oh definitely. Yeah. And, lots of times people probably working on the frontline will have compassion but I think -

PHILIPPA: The rules are the rules.

CHRIS: Yes, yeah. That they have to work with. Yeah, exactly.

Escaping debt and improving your circumstances

PHILIPPA: Look, we’ve spoken quite a lot about the effects of debt and how serious the problem can get if you don’t take action. Debt, obviously it can affect anyone, and one of the biggest challenges is keeping perspective on your situation, because getting out of debt is possible. Let’s hear from Lynn Beattie. Lynn is a Personal Finance Expert. She’s founder of the Mrs MummyPenny website and author of The Money Guide to Transform Your Life. She’s also a PensionBee customer.

LYNN: So I used to be employed, I had a good corporate job, I worked for a telco company and earned quite a chunk of money. But I decided to leave that world and set up Mrs Mummy Penny and my income literally crashed down to nothing. I had £40,000 worth of redundancy money, and I’d set a budget that I had 18 months to spend that £40,000 and that’s just basically going on like mortgage and council tax and bills and food, feeding my three children.

And I ended up funding an unsustainable lifestyle via my credit cards. I knew things were getting worse after 12 months, but I literally buried my head in the sand. I know I did. Because I felt the shame of being in debt because I’m a Personal Finance Expert. Like, how embarrassing would that be to admit to people I was in debt? It took about six months to actually face up to my problem. And by then I was literally paying for food to feed my children on a credit card. I’d got into a complete pickle.

So, it’s constantly on your mind. I would think about it 50 times a day. So I’d wake up and the first thing I’d think about was, oh, I’m in debt but I’m too scared to add up how much I’m in debt. Or, I’ve got £10,000 on that interest free credit card, but that deal’s gonna run out soon and I’m not sure if I’ll be able to get another interest free deal because I’m not employed anymore, I’m now self-employed. So all this sort of spiralling goes through your head. The mental burden of having that much debt is huge. Not only because of the impact it has on your own mental health, but it, you know, it causes arguments in relationships and it changes decisions you make with your children. So my light bulb moment was when I’d just returned from my 40th birthday celebration. Literally on the first day back from holiday, I was like, I’ve just gotta face this. And I added it all up and then it was £16,000. It was a sort of rock-bottom moment. How did it feel to realise I was £16,000 in debt? I think, a lot of emotions. So embarrassed, full of shame. It also empowered me that okay, I now know what my situation is. I know I’ve got £16,000 of debt, £12,000 of it is on 0% credit cards, some of it I need to restructure and get another 0% deal. And then you sort of go through the semantics of, right, what are the interest rates? How long have I got that 0% deal for? One of the debts was on a business credit card and I was paying like a 20% APR on it.

So, I then came up with a strategy of the order in which to pay off my debts. My first angle was to cut all of my bills back to the bare minimum. So I got rid of everything that was non-essential, you know, no gym memberships, only one TV subscription, you know, get rid of Netflix. I spoke to a friend and I told her my budget ideas and she went through my budget and she stripped out another sort of £200 a month. And then I did a few extreme, frugal challenges. I didn’t buy any clothes for me or my kids for a year. If we needed clothes, we just asked friends. I’m a makeup addict, like I love makeup and I didn’t buy any makeup for a year. And I know that sounds really ridiculous, but it’s something that I love. And I did some no spend months where the only thing you’re allowed to spend money on is your groceries and commuting to work. The only time where it got really difficult was in the summer holidays where my income dropped to like £1,000 a month and you know, you’ve got six weeks with your children at home. So that was a difficult one to explain to my children. Like, no we, we can’t go to the trampoline park. That was really, really hard. And my debt actually went backwards during the summer holidays.

I set an unrealistic challenge that I would pay my £16,000 off in 16 months - 16 months was so unrealistic. But I did manage to pay it off in two years. So by April 2019, I was credit card debt free. And that day I remember so clearly. It’s like you feel a physical weight being lifted from your shoulders. It’s incredible.

PHILIPPA: It’s an incredible story isn’t it? I mean Lynn mentioned common themes there that we’ve talked about. This idea of burying your head in the sand and not opening letters. I mean what are your best tips for not doing that? For getting out of that cycle of avoidance? Because it’s tempting isn’t it? If you know the news is gonna be bad, you don’t wanna open the envelope.

CHRIS: Yeah, I mean that’s something we hear about a lot through our research. Just the feeling that the debts are mounting up and that people then really struggle to reach out and seek help. I think it’s important, and obviously firstly thanks to Lynn for sharing that story because it’s a great story. And it’s really important to, to hear from people with lived experience about not only the drivers but also how they got help and support. Turning to free advice providers - that’s something people can do. So there’s lots of great providers out there like StepChange and Christians Against Poverty who can help people understand their debts, how much they owe, who to, and then the steps that need to be taken. And often they’re guided through that process. So that can be really useful.

PHILIPPA: I mean Tess, obviously Lynn shared a particularly hard time with credit card debt. It was just rolling and rolling and rolling and then she was using it to pay, you know, buy food. That links back to the poll that we were talking about earlier, doesn’t it? Even for people who’ve never been in debt before, a huge number of them mentioned credit cards. It was 73% who mentioned credit cards, didn’t they? Why do you think it is that so many people find their credit card debts so hard to control? Is it that invisibility, they just don’t see the money being spent?

TESS: It almost feels a little bit like free money, doesn’t it? Like it’s just, it’s there and therefore when you are getting maybe to the end of your actual income, maybe you’re thinking, well I know I can go a little bit over because I’ve got my credit card there. But then if you’re doing that every month, then it builds up and builds up and builds up. But also if you don’t actually know what’s going out. I know somebody, she’s in her 90s with dementia, living alone and she recently discovered that she was being charged - this is before the increase - being charged £500 a month for her energy bills. Which then went up to £750 a month with the increase. And so obviously if you are putting your head in the sand and not looking at things, there might also be things happening like that that you’re not aware of. If you leave it alone, you’re just giving the problem room to get bigger and worse.

PHILIPPA: I sometimes wonder whether doing away with paper statements hasn’t been such a great idea as we all thought it was at the time. I mean, I loved all that, not having the paper. But getting those paper bills - if you can bring yourself to open them and you see the lists of the stuff you spent on, you don’t have that now, do you? I mean, I don’t have that because I don’t get paper bills.

CHRIS: Yeah, I think that’s such a good point. And something that we hear a lot about is people can struggle to understand when they’re looking at their banking apps and saying ‘Actually what does this mean? How much money do I have in my account?’ Because there’s things like money going out at certain times -

PHILIPPA: Payments pending…

CHRIS: Yeah. So I think maybe, the idea of putting it back to basics and actually understanding yeah, how much is here and how much is there. That can be really useful.

PHILIPPA: Tess, we need to wrap this up, but I’m gonna ask you again. You mentioned on the last podcast about your spreadsheet. Tell us about Tess’ spreadsheet.

TESS: I do have a spreadsheet and I keep track of all of my outgoings and it’s just helpful because if you, I mean, I’m literally inputting every line on a spreadsheet, so I’m reminding myself every month where I’m spending my money. If you’re doing it regularly, then I think it’s helpful for you to sort of stop yourself getting in too much debt, I think. So, I think even if you feel like your finances are in a good place, I think it’s a good idea to be monitoring it in whatever way. You don’t have to have a spreadsheet like mine, but to be monitoring it in whatever way works for you so that you know what’s happening.

PHILIPPA: Tess, Chris, thank you very much. That is about all we have time for today. For links to all the resources and organisations we mentioned in the episode, take a look at the show notes on your podcast app.

You’ll also find links there to handy articles from the team at PensionBee. Just a final reminder that everything you’ve heard on this podcast should not be regarded as financial advice and wherever you invest your capital is at risk.

Join us again next month, we’ll be asking ‘What does a happy retirement look like?’ If you’ve got any feedback on any of our episodes, good or bad, or want to share your ideas for future shows, send us an email to podcast@pensionbee.com. We would love to hear from you.

Thanks for listening. See you next time on The Pension Confident Podcast.

Catch up on episode 9 and listen, watch on YouTube or read the transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

This article was last updated on 20/07/2023

A good spending and savings plan helps you understand what income you have, what needs to be allocated to immediate living expenses and what you plan to do with the rest. The 50-30-20 framework has traditionally been a popular rule of thumb to follow for budgeting your outgoings and savings. The idea is that you split up your total income as follows:

• 5^{_personal_allowance_rate} on current ‘needs’ (essential living expenses): food, transport costs, mortgage/rent, utility bills, essential clothing costs, minimum repayments on debt balances.
• 3^{_personal_allowance_rate} on current ‘wants’ (non-essential luxuries): gym memberships, gadgets, eating out, hobbies, subscription services.
• ^_basic_rate towards future savings and debt repayments: putting money aside for unexpected financial emergencies, saving for future goals, investments, pensions, debt overpayments.

As an example, for someone with ^{_tax_free_childcare} income after tax, they would broadly allocate:

• ^{_basic_rate_personal_savings_allowance} towards ‘needs’
• £600 towards ‘wants’
• £400 towards savings or debt repayments.

But a rule of thumb is just that - a guide. If you looked at the outgoings of 100 people earning the same amount of money, none of them would split their outgoings in exactly the same way because everyone’s financial situation is different.

If your choices around where you spend and save your money don’t follow the 50-30-20 rule, that’s fine as long as you have a healthy balance across current and future spending and saving. Personal finance is personal after all. However, if you want to increase your savings or pay down debt balances, the framework provides a good reference point to keep in check your spending on those things which are not necessities, and make sure you keep half an eye on the future.

Spending on ‘needs’

Our ‘needs’ are costs we have to incur in order to survive and so they’re a constant feature in our budget; you need somewhere to live, clothes to wear, and adequate food and water to stay in good health. These things are non-negotiable. So the starting point for budgeting our money begins with looking at how much money we need to allocate to those essential living costs. The issue is that over the last few months, almost all of our essential living costs have seen significant price increases, and some are still going up.

• The cost of our grocery shopping has been rising steadily over the past few months, as a result of legacy issues from factory shutdowns during the pandemic, the Russia-Ukraine conflict and increased energy costs for the food and beverage sector.
• Similarly, the amount we’re paying to fill our cars at the petrol station or charge them at electric charging points has increased substantially over the past year.
• The new Energy Price Guarantee came into force on 1 October 2022 and although it has alleviated the threat of further energy prices rising over the next two years, bills for the typical household are still more than double what they were this time a year ago.
• In an attempt to curb inflation, the Bank of England has hiked rates several times since December 2021, when the cost of borrowing was 0.1^{_personal_allowance_rate}, to its current level of 5%. Banks have since passed this increase through to mortgage holders. This impacts both homeowners on variable mortgage rates or needing to refinance, and landlords who will undoubtedly pass the cost on to tenants through increased rent.
• Credit cards with rates linked to the base rate will cost consumers more in increased borrowing costs.

So in light of this, does the 50-30-20 rule of thumb still apply in the current economic climate? If not, what needs to change?

What needs to change in the face of the cost of living crisis?

For many people, their spending on essential living costs is now considerably more than 5^{_personal_allowance_rate} of their income after tax. You can’t simply sacrifice spending on your ‘needs’ - these are things you can’t live without, or at least not without a significant decline in your standard of living. But you can make sure that you’re optimising what you do spend on these items.

Firstly, it’s crucial to make sure that you’re not overpaying for those items that you need to live comfortably. Compare your current deal to the best deals on the market for all your essential bills. This might result in you switching your mortgage provider or utility supplier to get the best deal available based on your circumstances. When it comes to groceries, it may mean changing where you shop, meal planning to avoid wastage and buying in bulk to make sure you’re getting the most for your money. It can be time consuming but it’s time well spent.

Once you have clarity on the lowest level your essential spending can go to, then you can work out how much of your income is left to split between the other two options; ‘wants’ and savings.

Take a good hard look at your everyday spending; grab a highlighter and highlight on a printed bank statement all of those things which you spend money on that aren’t needed to keep you fed, clothed or housed. It’s often shocking to see on paper how many ‘wants’ creep into our lifestyle. Then ask yourself what can you do without? This is the brutal reality of creating an effective spending and saving plan for your monthly income which doesn’t involve you needing to rely on credit each month. Sacrifices may be required.

Do you need to press pause on subscriptions for a period of time? Are there things you haven’t used enough to justify spending money on each month? Can you do without certain things in the short-term and instead defer the spending into the future? Remember these changes don’t have to be forever, just until you have more disposable income to add back in the money for spending on luxuries.

The danger comes if you don’t make sacrifices around your luxury spending, but instead opt to reduce your outgoings towards future savings and debt. If you lower the amount you put away each month towards savings and debt repayments, you’ll be doing a huge disservice to ‘future you’. It’s important that you don’t lose sight of the value of making sure you’re doing the right thing with your finances both now and for the future. We’ll come out the other side of the cost of living crisis and your future self will thank you for not making sacrifices now which will make life all the harder for you in the future.

Make sure you’ve weighed up the consequences of any actions which impact your future finances:

• Canceling standing orders into savings accounts for the things that are important to you in the future. This may seem an easy option to free up cash for the things you ‘need’ and ‘want’ today, but it means you’re likely going to miss out on those financial goals you have beyond the immediate future. Ask yourself how much those goals mean to you on a scale of one to 10 and ask yourself the same about the alternative choice for spending that money now. Give yourself the opportunity to reflect on the longer term consequences of your current actions.
• Reverting back to paying only the minimum balances on credit cards or loans. Paying off debt, whilst it’s hard, has benefits in so many areas; your mental health, your credit score and your financial resilience to withstand future financial knocks. If you revert back to minimum payments, you’ll end up paying more in interest payments over the lifetime of your debt. Ultimately this means less money to spend on the things you enjoy in life, now and in the future.
• Canceling payments towards investments. You’ll miss out on the benefit of compound interest increasing the value of those investments over time. Money loves the power of time to grow; compound interest is where your money and the interest it earns continues to grow over time as a result of interest being earned on the interest as well as the initial deposit or investment. It’s always possible to restart payments again in the future, but it will require larger deposits to get the same financial outcome in the future if you stop for a period of time. Be aware that your actions now can be costly in the future.
• Dialing back pension contributions, or stopping them altogether, because you feel as if retirement is a long time away and there’s plenty of time to catch up later. Not only do pensions grow with the power of compound interest but your pension contributions are topped up by tax relief from the government. If you’re a basic rate taxpayer you’ll usually get ^_basic_rate tax relief. In practice this means if you wanted to add £100 into your pension you’d only need to pay in £80 and HMRC will add the rest. Reducing or stopping pension contributions is essentially saying ‘no thank you’ to this free money. At a time when everything is getting more expensive, free money is a wonderful gift. Remember, too, that in order to have enough money saved for a comfortable retirement, it is advisable to aim to save ^_ni_rate of your salary into retirement savings throughout your working life.
• Don’t make the mistake of using your emergency savings for anything other than emergencies. Keep a stash of cash available for those things that you haven’t planned for in your budget and which have the potential to really knock you financially. If something unexpected happens and you don’t have a cushion to fall back on, you may need to resort to credit cards or loans which will ultimately cost you a lot more over the longer-term.

The ‘new’ rule of thumb

There is no one-size-fits-all rule when it comes to effective money management because it needs to be right for your circumstances and your life goals. However, aiming to allocate ^_basic_rate of your income towards saving or paying off debt remains a good aspiration, regardless. How the remainder is split between ‘wants’ and ‘needs’ will be unique to your circumstances. Your allocations may look like 65-15-20 or they may look like 80-0-20. Whatever it is, remember that good money management starts with getting clarity around where you’re currently spending and saving and, from here, you can make better decisions.

The 50-30-20 rule does need to be adapted to reflect the changing economic climate. With the cost of essential living expenses rising, the key to being financially secure starts with being able to optimise your spending on needs and get visibility on how much this leaves for everything else, then reigning in how much you spend on ‘wants’ so you can be disciplined to continue saving for the future and paying off debt.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Emma Maslin is a certified Financial Coach and Mentor, Financial Wellness Speaker and Founder of multi award-winning personal finance education website The Money Whisperer. A former Chartered Accountant, Emma believes financial health and wellbeing isn’t a luxury just for the wealthy; it’s a basic need for all of us.