What happened to pensions in January 2024?

How did the stock market perform last month and how does that impact your pension plan? Find out all this and more.

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

The fluctuations in your investments, such as your pension, are influenced by both ‘micro’ and ‘macro’ factors. Each pulling or pushing your investments in their own way. Imagine your investments as a small boat in a vast ocean. Two sets of waves affect them: tiny ripples and big waves.

Tiny ripples are micro factors. These are close-up details, from the profitability of the companies you’re invested in to whether those companies have released new products. By investing in many companies, known as diversification, your investments are less shaken by the rise or fall of a few outliers.

Big waves are macro factors. These influence how the whole economy moves, and could be things like interest rate changes or geopolitical tensions. They affect everyone in the ocean, not just your boat. Macro factors can have a big impact, even on diversified investments. For this reason investors tend to keep an eye on trends in the global economy.

Keep reading to find out how markets have performed this month and what key trends could shape the global economy, and your pension, in 2024?

What happened to stock markets?

In the UK, the FTSE 250 Index fell by almost 2% in January.

Source: BBC Market Data

In Europe (excluding the UK), the EuroStoxx 50 Index rose by almost 3% in January.

Source: BBC Market Data

In North America, the S&P 500 Index rose by almost 2% in January.

Source: BBC Market Data

In Japan, the Nikkei 225 Index rose by over 8% in January.

Source: BBC Market Data

In the Asia Pacific (excluding Japan), the Hang Seng Index fell by over 9% in January.

Source: BBC Market Data

Key trends to watch in 2024

The value of a company is influenced by its performance, which in turn is impacted by the wider economy too. Here are five key trends that could shape the global economy, and your pension, in 2024.

1. Elections making headlines

The year ahead promises to be monumental for global politics. Almost half of the world’s population will cast their ballots in national elections. That equates to over four billion people across more than 50 democratic countries.

Elections likely to gain significant news coverage include:

Russia’s presidential elections in March;
India’s parliamentary elections in April and May;
EU parliamentary elections in June;
US presidential elections in November; and
the UK’s general election, which is set to take place at some point in 2024.

The outcome of these elections will shape international trade and the global economy for several years to come.

2. Growing geopolitical tensions

There has been a rise in global tensions and conflicts. The world is facing the highest number of violent conflicts since the Second World War, with around two billion people living in these areas of conflict. Russia’s ongoing war against Ukraine has cast a long shadow on the global economy. When the full-scale invasion began two years ago, a series of economic shocks unfolded.

With the international supply of key exports restricted or suspended, prices rose sharply causing inflationary pressures on households. Central banks began raising interest rates and companies suffered under these uncertain conditions. We’re still experiencing a slow recovery from this. It’s difficult to predict the long-term effects of the latest conflicts in the Middle East and how long those shocks might last. This adds an additional layer of uncertainty to the global economic outlook.

3. Falling inflation

The global economic recovery remains slow, according to the International Monetary Fund. In the UK, inflation was at 4% in the 12 months to December 2023. This is double the Bank of England’s target of 2%. In February 2024, the Bank Rate was maintained at 5.^{_corporation_tax} for the fourth month running. This remains the highest it’s been since 2008.

This is being mirrored in other major economies, such as the Federal Reserve in the US which currently has rates between 5.^{_corporation_tax} and 5.5%. Experts anticipate the UK’s Bank Rate will drop to 3% and inflation will fall to 2% by the end of 2025. This slow and steady approach aims to give the UK economy a soft landing in the next two years.

4. Renewables gaining traction

The push for cleaner energy sources is expected to accelerate in 2024. Companies and governments are setting increasingly ambitious decarbonisation targets, with some US utilities aiming for 8^{_personal_allowance_rate} carbon reduction by 2030, exceeding previous net-zero by 2050 goals. Renewable energy costs are falling, making them increasingly competitive with fossil fuels.

Additionally, rising concerns about climate change and energy security are prompting a shift towards renewable options. As the clean energy sector continues to prove its potential, it’s attracting the significant investment needed for expansion.

5. Artificial Intelligence booming

The Artificial Intelligence (AI) revolution is underway. The bad news is that over the next five years 14 million jobs will be replaced by new technologies, according to The World Economic Forum. The good news is that an AI gold rush is widely predicted.

By 2032, experts predict that AI-powered digital advertising will generate a staggering $192 billion annually, while the market for dedicated AI servers could reach $134 billion. These figures underscore the vast potential of AI to revolutionise industries from marketing to healthcare. Those investing in these AI companies could financially benefit from this.

In summary

The past four years have been wildly unpredictable. 2020 and 2021 rocked our small boat with broken supply chains, a devastating pandemic, and stalled growth. Then came the rollercoaster of 2022 and 2023, with inflation spiking, energy prices sent us into rough seas, and the recovery felt shaky. But here is the good news; the outlook for 2024 and 2025 appears stronger. This could be the period we start to regain a more solid economic footing.

Inflation, while still high, is finally cooling down. Supply chains are healing, and growth, though slow, is back on track. The next two years are crucial. It’s all about stabilising prices, reviving growth, and finding that “pre-pandemic normal” for interest rates and inflation. Central banks and governments will be juggling inflation control with economic support, a tricky balancing act.

Even so, geopolitical and economic tensions around the world remain high. With elections looming in several countries, including the UK, there’s still potential for future turbulence. In any case, pension saving is usually a marathon and not a sprint. 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 monthly pension update series. Check out the next month’s summary here: What happened to pensions in February 2024?

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.

How PensionBee’s plans are performing in 2023 (as at Q4)

Find out the performance of the PensionBee plans at the end of 2023, when compared to the UK and US stock markets.

This is part of our quarterly plan performance series. Catch up on last quarter’s summary here: How PensionBee’s plans are performing in 2023 (as at Q3).

2023 was a prosperous year for many global stock markets and many pension savers will have seen growth in their retirement savings. It may well seem we’re now on the path to recovery. Nevertheless, geopolitical and economic tensions around the world remain high, and with elections looming in several countries, including the UK, there’s potential for future turbulence. In any case, pension saving is considered to be a marathon, rather than a sprint, and years like 2023 make saving productive in the long run.

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

2023 figures cover the period between 1 January and 31 December 2023.

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

Company shares in 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 a decline in share prices if the company performs poorly or even goes bankrupt. Company shares are also known as ‘stocks’ or ‘equities’, and they’re commonly traded on stock markets.

Global stock markets

Stock markets underwent a dramatic reversal in Q4 2023. Early concerns about inflation and interest rate hikes caused an initial downturn, but positive economic indicators sparked a significant rally in the latter months. Most stock market indices experienced substantial gains, making up for recent losses and approaching record highs. The technology sector was a key driver, with several prominent companies fueling most stock market surges. This positive quarter exemplifies the dynamic nature of many stock markets and underscores the importance of long-term investing.

Index	Investment location	Performance over 2023 (%)	Equity proportion (%)
FTSE 250 Index	UK	+4.4%	10^{_personal_allowance_rate}
EuroStoxx 50 Index	Europe (excluding the UK)	+19.2%	10^{_personal_allowance_rate}
S&P 500 Index	North America	+24.2%	10^{_personal_allowance_rate}
Nikkei 225 Index	Japan	+28.2%	10^{_personal_allowance_rate}
Hang Seng Index	Asia Pacific (excluding Japan)	-13.8%	10^{_personal_allowance_rate}

Source: BBC Market Data

PensionBee’s equity plans

Plan	Money manager	Performance over 2023 (%)	Equity proportion (%)
Fossil Fuel Free Plan	Legal & General	+17.2%	10^{_personal_allowance_rate}
Shariah Plan	HSBC (traded via State Street Global Advisors)	+27.4%	10^{_personal_allowance_rate}
Impact Plan	BlackRock	+7.6% ^	10^{_personal_allowance_rate}
Tailored (Vintage 2061 - 2063) Plan	BlackRock	+17.3%	10^{_personal_allowance_rate}
Tailored (Vintage 2055 - 2057) Plan	BlackRock	+17.3%	10^{_personal_allowance_rate}
Tailored (Vintage 2049 - 2051) Plan	BlackRock	+16.6%	96%
Tailored (Vintage 2043 - 2045) Plan	BlackRock	+15.2%	85%
Tracker Plan	State Street Global Advisors	+16.9%	8^{_personal_allowance_rate}
4Plus Plan	State Street Global Advisors	+10.3%	73% ^^
Tailored (Vintage 2037 - 2039) Plan	BlackRock	+13.2%	72%
Tailored (Vintage 2031 - 2033) Plan	BlackRock	+11.6%	59%

^Performance for Q4 2023 only. Fund inception date was 15 February 2023, so calendar year reporting data is not available.

^^Equity % at 31 December 2023, allocation changes on a weekly basis due to the plan’s actively managed component.

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 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. A bond yield is the annual return that an investor gets from a bond. Due to their historical stability and predictability, bonds are a popular choice for shorter-term investors such as retirees who plan to drawdown in the near future. Bonds are also known as ‘fixed-income securities’.

Global bond markets

As interest rates peaked in 2023, bonds started looking attractive again. After years of negative returns, the fixed income offered by bonds provided a safe haven in the volatile market. Investors, seeking stability, flocked to bonds. For some, it was a welcome respite from the stock market’s recent rollercoaster.

Fund	Source	Performance over 2023 (%)	Fixed-income proportion (%)
Schroder Long Dated Corporate Bond Fund	Morningstar	+11.9%	9^{_personal_allowance_rate}

Source: Morningstar

PensionBee’s fixed-income plans

Plan	Money manager	Performance over 2023 (%)	Fixed-income proportion (%)
Pre-Annuity Plan	State Street Global Advisors	+11.^{_personal_allowance_rate}	10^{_personal_allowance_rate}
Tailored (LifePath Flexi) Plan	BlackRock	+8.9%	6^{_personal_allowance_rate}
Tailored (Vintage 2025 - 2027) Plan	BlackRock	+10.1%	^{_scot_top_rate}

PensionBee’s money market plans

Plan	Money manager	Performance over 2023 (%)	Cash equivalent proportion (%)
Preserve Plan	State Street Global Advisors	+4.7%	10^{_personal_allowance_rate}

This is part of our quarterly plan performance series. Check out the next quarter’s summary here: How PensionBee’s plans are performing in 2024 (as at Q1).

Have a question? Get in touch!

Do you want to know more about your pension plan with PensionBee? Check out our blog on the Top 10 holdings in your pension and see which companies you’re investing in. 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

January product spotlight

In our product update series we highlight some of our recent new product features and updates. This month's edition focuses on updates to our Retirement planner and our app's Discover tab.

How to catch up on pension payments

If you’ve stopped your pension payments and are looking to catch up, don't panic – it's never too late to get back on track. Here are a few things you can do.

Making regular contributions to your pension is a crucial way to save for a happy retirement. However, life can be unpredictable, and there may be times when you find yourself unable to maintain a consistent level of contributions. If you’ve stopped your pension payments and are looking to catch up, don’t panic – it’s never too late to get back on track. Here are a few things you can do.

Assess your financial situation

You might have lowered, or stopped your pension contributions altogether, for a couple of reasons. Maybe you’ve taken some time out of work, have been juggling other rising costs or, prioritising paying off debt. So take some time to go through your finances and understand all of your incomings and outgoings. Firstly this will enable you to prioritise your regular payments such as housing, travel and food. And secondly, it’ll help you identify where you might be able to cut back in order to resume your pension contributions.

Increase your contributions

If you’re able to, you might want to consider increasing your pension contributions gradually to get back on track. If you’re employed, you might be able to increase the percentage of your salary you contribute each month. Since Auto-Enrolment was introduced in 2018, the minimum employee contribution is 5% of qualifying earnings with employers needing to contribute a minimum of 3%. However, your employer might agree to pay more into your pension if you increase your contributions. This is known as ‘contribution matching’. Check your employee handbook or speak to your company’s HR department to find out more.

Consider a lump sum payment

If you’re returning to work after some time off, or have recently come into some money, you might want to consider making a lump sum payment to make up for missed contributions. If you’re closer to your desired retirement age, or are planning on retiring early, paying in a lump sum is a great way to give your savings a boost. You can use our Pension Calculator to check your pension forecast and discover if you’re on track to meet your goals.

Use carry forward and make the most of pension tax relief

In the current tax year you can contribute up to ^{_annual_allowance} to your pension. If you use up all of your annual allowance in one year, it’s possible to contribute more to your pension with unused allowances from the previous three tax years and still receive tax relief. Claiming tax relief on pension contributions for previous years is relatively straightforward as long as you were a member of a pension during that time. Before you get started, make sure you’re clear on the carry forward rules.

Four ways to catch up on pension payments

Using our Pension Calculator, we’ve done some modelling to showcase how the average person might make up for five years of missed pension payments. These calculations are based on a 40-year-old with an annual salary of £40,000 and a current pension pot of £30,000.

The following scenarios are for illustrative purposes only and assume: - pension experiences investment growth of 5%, inflation of 2.5%, and an annual plan fee of 0.7^{_personal_allowance_rate}; - salary experiences annual growth of 3.1% and inflation of 2.5%; and - contributions to their workplace pension (when making them) are 8% of their gross salary.

Some employers may enrol you in a defined benefit pension scheme, or not enrol you at all. If you’re unsure which type of pension you have, you can always ask your employer for more information. Learn about the eligibility criteria for Auto-Enrolment.

1. Scenario one

This scenario assumes you re-enrol into your company’s pension scheme from Year 6, after opting out for five years. The below graph shows the difference between:

remaining opted out;
opting back in from Year 6; and
what your pension would look like if you’d remained opted in.

2. Scenario two

This scenario assumes you re-enrol into your company’s pension scheme from Year 6, after opting out for five years. And you make a lump sum payment of £2,400 (before tax relief) that same year. The below graph shows the difference between:

remaining opted out;
opting back in from Year 6 and making a lump sum; and
what your pension would look like if you’d remained opted in.

3. Scenario three

This scenario assumes you re-enrol into your company’s pension scheme from Year 6, after opting out for five years. And you start making additional personal contributions of £200 (before tax relief) per month from Year 6. The below graph shows the difference between:

remaining opted out;
opting back in from Year 6 and making additional personal contributions; and
what your pension would look like if you’d remained opted in.

4. Scenario four

This scenario assumes you re-enrol into your company’s pension scheme from Year 6, after opting out for five years. Plus you make a lump sum payment of £2,400 (before tax relief) in Year 6 and you start making additional personal contributions of £200 (before tax relief) per month from Year 6. The below graph shows the difference between:

remaining opted out;
back in, making a lump sum payment and making additional personal contributions; and
what your pension would look like if you’d remained opted in.

Risk warningAs 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.

How could pensions be impacted by a general election?

What might a potential change in government mean for your pension?

For the most part, nobody likes uncertainty. It can get in the way of progress and stop us moving forward with plans for the future – and these don’t get more important than retirement plans. With a general election on the way, there’s been a lot of guesswork in the world of pensions as to what impact it’ll have on our retirement savings.

With polls heavily suggesting a Labour win later this year, all eyes have been on the party’s Plan for Financial Services. This document answered some, but not all, of the questions around how it might act should it win. Let’s take a look at what a potential change in government could mean for your pension.

1. The Lifetime Allowance

In last year’s Spring Statement the Conservative Party announced it would be scrapping the Lifetime Allowance. This change is due to come into effect in April 2024. The Conservatives intended to encourage inactive individuals to return to work and remove the incentives to stop working. Labour has previously stated it would reverse this decision and reinstate the Lifetime Allowance should it get the opportunity. However, readers of the latest plan may have noted its exclusion, suggesting it might be subject to review.

2. Mansion House Reforms

There’s unlikely to be much divergence between the main parties on the Mansion House Reforms. Announced by Chancellor Jeremy Hunt in July 2023, the reforms are designed to seek ways to incentivise pension funds to invest more in the UK. In its latest plan, Labour announced it would create a British ‘Tibi’ scheme (akin to the French version which has created a €5 billion fund of institutional investment for French tech companies). If this were to happen in the UK, we could see increased investment into companies identified as having high growth potential. How would this impact pensions? Well, it would give UK pension funds, and with them its pension savers, an opportunity to invest in Britain’s most promising businesses.

3. Changes to Auto-Enrolment

A Conservative-backed bill has previously suggested changes to Auto-Enrolment which included:

lowering the minimum age from 22 to 18 - giving young workers the opportunity to start saving four years earlier; and
removing the qualifying earnings band - meaning contributions could be paid from the first pound earned.

Labour looks keen to expand Auto-Enrolment. This won’t come as much of a surprise as Labour initially developed Auto-Enrolment legislation as part of the Pensions Act 2008, before it was rolled out by the Conservative and Liberal Democrat coalition government from 2012-2018.

4. The State Pension and the triple lock

As we know from PensionBee’s Pension Confidence Index, the State Pension is an important factor for many of the UK’s pension savers. So the triple lock is a hot topic for any government, incoming or otherwise. Last year, the Chancellor maintained the triple lock and the State Pension will rise by 8.5%, in line with average earnings, from April. So the Conservatives have protected it for now but Labour’s position is unclear.

Last year, Deputy Leader of the Labour Party; Angela Rayner failed to confirm Labour’s commitment to the triple lock. While more recently Shadow Secretary of State for Work and Pensions; Liz Kendall stated there were no plans to change the triple lock. With the State Pension creating a sizable burden on the public purse, the triple lock is likely to continue to face scrutiny.

5. ‘Pot for life’ or lifetime pensions

Last year’s Autumn Statement saw the Chancellor unveiling plans for a ‘pot for life’. This would give employees the power to choose their own pension provider. Plus, it would help solve the problem of multiple small pots. Meanwhile, Labour has announced it’ll give the The Pensions Regulator new powers to bring about consolidation on certain defined contribution schemes. It has also criticised the delays to the Pensions Dashboards – which are designed to give savers access to all of their pensions data in one place. After several delays, the current timeline puts launch at 31 October 2026.

Gabriella Griffith is a freelance business journalist having worked across The Times, Sunday Times, The Telegraph and City AM. She also hosts the Find Your Business Voice podcast and co-hosts the Big Fat Negative podcast. She has a particular passion for start-up and SME stories, personal finance and women’s health.

Risk warning

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What happened to pensions in July 2024?

How did the stock market perform in July 2024 and how does that impact your pension plan? Find out all this and more.

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in June 2024?

Please note that during July 2024 pension balances have been experiencing some volatility; to learn more you can read: Why have financial markets been volatile this summer?

Following the Labour Party’s victory in July’s general election, Rachel Reeves was appointed as the Chancellor of the Exchequer by the Prime Minister, Sir Keir Starmer. This makes her the first woman to hold the office in its over 800-year history.

But Reeves isn’t the only historic nomination under the new government. Since the turn of the 21st century, the UK government has had 10 Chancellors. Sounds like a lot? In that same timeframe there’s been 15 Pension Ministers. The newest incumbent, Emma Reynolds, has been appointed to hold two important roles simultaneously. She’s been designated as the Parliamentary Under-Secretary of State for Pensions and the Parliamentary Secretary for the Treasury.

By holding both positions, Reynolds will have the opportunity to contribute to pension policies and broader economic matters. This should promote a more integrated approach to tackling financial concerns, like the maintenance of State benefits, in the UK.

Keep reading to find out how the pension landscape may change under the new government.

What happened to stock markets?

In the UK, the FTSE 250 Index rose by almost 7% in July. This brings the year-to-date performance close to +1^{_personal_allowance_rate}.

Source: BBC Market Data

In Europe (excluding the UK), the EuroStoxx 50 Index remained flat in July. This brings the year-to-date performance close to +8%.

Source: BBC Market Data

In North America, the S&P 500 Index rose by over 1% in July. This brings the year-to-date performance close to +16%.

Source: BBC Market Data

In Japan, the Nikkei 225 Index fell by over 1% in July. This brings the year-to-date performance close to +17%.

Source: BBC Market Data

In the Asia Pacific (excluding Japan), the Hang Seng Index fell by over 2% in July. This brings the year-to-date performance close to +2%.

Source: BBC Market Data

Changes to pensions under the new government

With a joint ministerial role across both the Department for Work and Pensions (DWP) and HM Treasury, Emma Reynolds is set to conduct a comprehensive review of the UK pension landscape, fulfilling a promise made by the Labour Party during their election campaign.

Reynolds will be joining Liz Kendall, the Secretary of State for Work and Pensions in the Department for Work and Pensions (DWP), and the Chancellor Rachel Reeves in the Treasury. Together they’ll be working towards a wish list of items that previous Pension Ministers have failed to successfully address. Here are nine areas the new Pensions Minister will need to tackle:

1. Initial pension landscape review

The Chancellor, Rachel Reeves, has initiated a thorough review of the UK pension system. The reform will take place in two stages, with a focus on improving pension management in the short and long term. The goal is to boost investment, grow pension pots, and tackle inefficiencies within the sector.

2. Decision on WASPI compensation

The Women Against State Pension Inequality (‘WASPI‘) movement was founded in 2015 to address the disproportionate harm caused by the new eligibility criteria for the State Pension to women born in the 1950s. Many women have complained they’ve been adversely affected due to poor communication from the Department for Work and Pension (DWP).

The Parliamentary and Health Service Ombudsman (PHSO) recommended compensation ranging from ^{_basic_rate_personal_savings_allowance} to £2,950 per woman, which falls significantly short of the ^{_money_purchase_annual_allowance} per woman that WASPI had campaigned for. Now it’s up to the new government to decide how the WASPI women should be compensated.

3. Extension of Auto-Enrolment

The expansion of Auto-Enrolment has already been put into place. These changes include lowering the starting age from 22 to 18 and having pension contributions begin from the first penny earned, rather than the current starting point of ^{_lower_earnings}. This should give young savers a boost in the long term.

4. Help savers understand retirement income options

Under the 2015 ‘pension freedoms’ savers can choose how they withdraw from their pension. But with life spans growing longer, it’s more important than ever for pension savings to support individuals throughout their whole retirement. One idea is requiring pension schemes to clearly outline withdrawal options.

5. Improve self-employed pension saving

Currently just 16% of self-employed workers pay into a pension, causing millions to retire without adequate savings. This has the potential to put additional pressure on the future State Pension, so the government may need to consider how they could expand Auto-Enrolment to engage more self-employed workers.

6. Pot for life reforms

The idea of ‘pot for life‘ is to provide workers with more control over their retirement savings. Traditionally, when someone changes jobs, their new employer selects a new pension scheme for them. Over time, this leads to multiple pension pots scattered across various providers.

It’s already technically possible to ask an employer to pay into a personal pension of your choice, rather than to use the Auto-Enrolment provider offered by them. But, employees rarely ask their employers to do this - and few employers agree. So far, the new government has made no commitment on pot for life.

7. Reallocate funds into the UK economy

The previous government announced plans to stimulate economic growth by encouraging investment in UK companies from UK pension funds. Labour has signalled they support this reform. However, of all the pension recommendations, this policy has been met with a high level of criticism.

8. Reviewing the minimum pension age

Currently the earliest you can access your private or workplace pensions is from age 55 (rising to 57 in 2028); while you’re currently eligible for the State Pension from age ^{_state_pension_age} (rising to ^{_pension_age_from_2028} by 2028). One proposed change is reviewing the minimum pension age, potentially improving retirement fund sustainability. It’s worth noting that such policy moves are often unpopular with the general public.

9. Unveil the long-awaited pensions dashboard

Back in 2002, the Secretary of State for Work and Pensions suggested a web-based retirement planning tool. Fast forward over two decades and this still hasn’t been implemented. The pensions dashboard would allow savers to view their combined pensions information online, helping to reconnect lost pension pots and better plan for retirement.

PensionBee’s VP Public Affairs, Becky O’Connor, commented: “We’re pleased to welcome the new Pensions Minister. This will be a crucial appointment, given Labour’s manifesto commitment to a comprehensive review of the pensions and retirement savings system, a measure that could potentially benefit millions of savers.”

Summary

With the appointment of Emma Reynolds as the Pensions Minister in the new government, there’s a renewed sense of hope for positive changes in the way pensions are managed.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in August 2024?

Have a question? Get in touch!

Do you want to know more about your pension plan with PensionBee? You can check out our Plans page to learn how your money is invested in different assets and locations, or log in to your BeeHive to see your specific plan. You can always send comments and questions to our team via engagement@pensionbee.com.

Risk warning

What does the first UK female Chancellor mean for my pension savings?

Learn about the UK's first female Chancellor and what it means for your pension.

After a landslide win for Labour in the 2024 general election, Rachel Reeves has been appointed Chancellor of the Exchequer. It’s a milestone moment for British politics as she’ll be the first woman to occupy the position since it was created 800 years ago. A great moment for women, but what does it mean for you and your pension savings?

Labour’s manifesto highlighted a strong focus on economic stability and growth, but now the Chancellor’s been in office for a month, her plans are starting to unfold.

Here’s a summary of what we’ve seen so far and what might be to come.

Winter Fuel Payments

The new Chancellor’s hit the ground running with a big change to Winter Fuel Payments. The allowance applied to everyone over State Pension age (^{_state_pension_age} rising to ^{_pension_age_from_2028} in 2028) before, but will now only be available to pensioners already receiving other state benefits like Pension Credit.

Pension tax-relief

There’s conversation around whether the Chancellor will change how pensions are taxed to help cover the shortfall in the public finances. For example, we may see a change to the amount of pension tax relief savers receive, or to the ^{_corporation_tax} tax-free cash pensioners can withdraw.

The Chancellor’s argued in favour of a flat rate of 33% tax relief for everyone in the past. The Labour party have so far said it’s not policy.

Triple lock State Pension protection

Before the election, Labour ruled out matching the Conservatives’ ‘triple lock plus’ pledge. This would have seen the tax-free pension allowance rise every year in line with the triple lock. It means more pensioners could face tax on their retirement income as the State Pension will continue to rise each year by; inflation, average earnings or 2.5% - whichever is highest.

Gender pension gap

The Chancellor has made no secret of her ambition to drive progress for women, and the role that this will play in Labour’s vision for economic growth.

Possible measures such as better maternity leave, improved conditions for part-time workers and flexible working arrangements could impact the gender pension gap too.

A review of workplace pensions

Labour has committed to a review of workplace pensions and the Chancellor launched a two-part pensions review this month. Whilst the details are yet to be shared, the 2024 manifesto pledged to consider what further steps will improve security in retirement, and increase productive investment in the UK economy.

Pension Schemes Bill

During the King’s Speech in July 2024 the Pension Schemes Bill was announced. It aims to create a private pensions market that focuses on value and outcomes for members.

The bill includes measures to combine “micro” pension pots of less than ^{_basic_rate_personal_savings_allowance} into one place;

so people don’t lose track;
to ensure all members are saving into pension schemes that deliver value;
to focus on poor performing default funds; and
to require pension schemes to offer a retirement income solution or range of solutions to their members.

Auto-Enrolment changes

The Pensions (Extension of Automatic Enrolment) Act was passed in 2023 but is yet to be applied. It would extend Auto-Enrolment to 18 to 21-year-olds and may get rid of the lower earnings limit. This would mean more contributions but a potential reduction in take-home-pay.

Minimum pension age increase

The minimum pension age is the age at which you can access your pension. It’s currently 55 (rising to 57 in 2028) for workplace and private pensions and for the State Pension it’s aged ^{_state_pension_age} (rising to ^{_pension_age_from_2028} in 2028). The age at which you can access your pension is rumoured to be within the wider pension review. It’s believed that making people wait longer before they access their money could help in making retirement funds more likely to last into the future.

The Autumn Budget is set for 30 October, where we expect to find out how these areas will develop and see new measures announced.

Risk warning

Sole trader vs limited company: how do the tax savings stack up?

When you’re self-employed, there are pros and cons to setting yourself up as a sole trader or a limited company – but how does it compare in terms of hard cash?

This article was last updated on 11/06/2025

When you’re self-employed, there are pros and cons to setting yourself up as a sole trader or a limited company - but how does it compare in terms of cash?

As a self-employed journalist and blogger, I’ve been trying to work out if and when it makes sense to switch from being a sole trader to setting up a limited company. The two are taxed differently, so it makes a difference to the pounds in your pocket.

Sole trader: totally tax-free as you get started

Starting off as a sole trader makes life easier and less expensive. You don’t face paperwork beyond your own Self-Assessment tax return. There’s no need to wade through incorporating a company and then filing annual accounts, a confirmation statement and a company tax return each year.

There’s no requirement to pay for an accountant or fork out for a business bank account. You don’t have to justify spending any of your earnings, or shoulder the legal responsibilities of being a company director. You can also keep your company figures and office address private, rather than visible to all at Companies House.

On the money side, as a sole trader, the profits from your business are included on your own tax return. Personally, I earnt next to nothing when I first went freelance after maternity leave. I also couldn’t take on much work while juggling two children with less than two years between them.

Luckily, if you earn under ^{_basic_rate_personal_savings_allowance} a year in gross income from your business, you can pocket the lot tax-free under the trading allowance. In this case, you also don’t have to tell HMRC that you’re self-employed.

Once your income starts stacking up, you can choose between deducting:

the ^{_basic_rate_personal_savings_allowance} trading allowance from your business income; or
actual expenses.

Provided your profits, plus any other earnings, don’t pass the *standard £12,570 a year personal allowance (^{_current_tax_year_yyyy_yy}), you won’t pay a penny in Income Tax. While profits are still low, you won’t have to fork out for National Insurance contributions (NICs) either.

Once your earnings increase, you’ll need to pay Class 4 NICs at 6% on anything between £12,570 and £50,270 a year. If you earn anything over £50,270, you’ll have to pay Class 4 NICs at 2%.

*The personal allowance goes down by £1 for every £2 that your adjusted net income is above ^{_high_income_child_benefit}. This means someone’s allowance is zero if their income is ^{_lower_earnings_limit},140 or above.

If your profits are less than £6,845 a year

You don’t have to pay anything but you can choose to pay voluntary Class 2 contributions. The Class 2 rate is £3.50 a week (^{_current_tax_year_yyyy_yy}).

This helps protect your National Insurance (NI) record and your eligibility for certain benefits such as Maternity Allowance and the State Pension. Once you earn over the ‘small profits threshold’ of £6,845 a year, Class 2 NICs are treated as having been paid. Plus, even if you don’t earn enough to pay Income Tax, you can still stash away up to £2,880 a year into a pension. You could see this topped up to as much as £3,600 with tax relief.

Sole trader: double whammy of income tax and NICs as profits soar

The tax bills really get going when you start paying Income Tax and self-employed NICs. The table below outlines how profits impact your self-employed NICs and Income Tax rates for ^{_current_tax_year_yyyy_yy}. Please note, if you live in Scotland these rates differ.

Profits	Self-employed NICs	Income Tax
Below £6,845	Can choose to pay £3.50 (Class 2) for every week you’re self-employed	^{_personal_allowance_rate}
£12,570 to £50,270	6% (Class 4)	^_basic_rate
£50,271 to ^{_lower_earnings_limit},140	2% (Class 4)	^_higher_rate
Over ^{_lower_earnings_limit},140	2% (Class 4)	^{_additional_rate}

The silver lining is that higher earnings mean you can pay more into a pension, and benefit from extra tax relief. Most people can pay up to 10^{_personal_allowance_rate} of earnings, to a maximum of ^{_annual_allowance} a year (^{_current_tax_year_yyyy_yy}), into a pension and still benefit from tax relief. Basic rate tax relief adds 20p to every 80p you pop in your pension pot. If you’re a higher or additional rate taxpayer, you can claim back extra relief through Self-Assessment.

How does becoming a limited company compare?

Once you face paying ^_basic_rate, ^_higher_rate or ^{_additional_rate} Income Tax on profits as a sole trader, the ^{_corporation_tax_small_profits} lowest rate of corporation tax paid by limited companies doesn’t look so bad.

Corporation tax for ^{_current_tax_year_yyyy_yy} is paid at:

^{_corporation_tax_small_profits} on profits of less than £50,000 a year;
^{_corporation_tax} on profits of greater than £250,000; and
on a sliding scale between the two, after calculating marginal relief.

Some people prefer to do it straight away for extra protection. As a sole trader, you and your business are lumped together. Legally, you’re one and the same. This means if your business goes belly up or you get sued, your creditors could come after your home or other assets. In contrast, when creating a limited company, you create a separate legal entity, which limits your liability. You can only lose what you’ve put into the company.

Limited company: corporation tax from the first pound

On the financial side, setting up a limited company involves juggling extra taxes. This might make more sense to do as your business gets bigger. As a limited company, you’ll need to pay corporation tax on any profits. The bad news is that there isn’t a personal allowance or ^{_basic_rate_personal_savings_allowance} tax-free trading allowance with corporation tax. Instead, you face paying ^{_corporation_tax_small_profits} corporate tax from your first pound in profits.

The good news is that you can claim a wider range of allowances and tax-deductible costs as a limited company. This will bring down your profits and therefore your tax bill. I suspect I may’ve been missing out by sticking as a sole trader, once my children started school and I took on more work.

As a limited company, it can also be easier to raise money. For example, by issuing shares, attracting investors or applying for bank loans and grants.

Limited company: how to pay yourself

In reality, unless you have oodles of other income elsewhere, you’ll also need to take some cash out of your limited company to live on. The two main ways of taking money out of a limited company are as salary and dividends.

If you’ve set yourself up as a director and shareholder of your company, you can:

pay yourself a salary as a director and employee;
take dividends from profits as a shareholder; and
make employer pension contributions from your company, to beef up your income in retirement.

A tax efficient combination could be to take a salary low enough to escape paying Income Tax with little or no NICs, plus some dividends and potentially some pension contributions. However, the perfect combo will depend on your own specific circumstances, and the tax bands at the time.

Taking a tax-efficient salary

Paying yourself a salary has a couple of perks. Salary, and any Class 1 employer NICs paid on it, count as allowable business expenses that can be taken from your profits. This then cuts your corporation tax bill. Plus, as long as the salary is above the lower earnings limit of £6,500 (^{_current_tax_year_yyyy_yy}), you should rack up qualifying years towards a State Pension even if you don’t pay any Class 1 employee NICs.

Changes to NI from April 2025 have affected how much you might want to pay yourself as a salary:

the rate of employer’s NI has increased from 13.8% to ^_ni_rate; and
the threshold when employers have to start paying NI for their employees has been pushed down from £9,100 per year to ^{_starting_rates_for_savings_income} per year.

To limit the impact of this cost increase on smaller companies with lower paid employees, the Employment Allowance has also been increased. Eligible employers can now claim up to £10,500 off their employer NICs bill, up from ^{_starting_rates_for_savings_income} before April.

To make the most of your money, there are a few different options.

Hassle-Free: ^{_starting_rates_for_savings_income} a year

Setting your salary just below the ‘secondary threshold’ for NI, which is when employers have to start paying Class 1 employer NICs, means you avoid paying any NICs at all. At ^{_corporation_tax_small_profits} corporation tax, it’ll also knock £950 off your corporation tax bill.

However, keeping your salary so low also means you won’t build up qualifying years towards your State Pension.

Protect your State Pension: £6,500 a year

Setting your salary at the £6,500 Lower Earnings Limit for employee NICs will protect your entitlement to the State Pension, without having to actually pay either employee NICs or Income Tax.

Your company will potentially, however, have to pay ^_ni_rate employer NICs on the chunk of salary between ^{_starting_rates_for_savings_income} and £6,500.

As both salaries and employer NICs can be taken from company profits, you’ll still save £1,052.75 on your tax bills, based on ^{_corporation_tax_small_profits} corporation tax, even after forking out for employer NICs.

Sole director and employee: £12,570 a year

One man band? It’s usually most tax-efficient to push your salary up to the ‘primary threshold’. This is when employees and directors start paying Class 1 NICs, which is equivalent to £12,570 (^{_current_tax_year_yyyy_yy}). You’ll save more in corporation tax than your business pays in employer NICs, and you won’t have to fork out for employee NICs.

At ^{_corporation_tax_small_profits} corporation tax, this salary will save a total of £1,468.55 in tax, after covering employer NICs.

Two or more employees: also £12,570 a year

If your company has at least two employees and can claim the Employment Allowance, it makes financial sense to take your salary up to the £12,570 personal allowance.

This way, you earn the maximum possible without paying Income Tax or employee’s NICs, and the Employment Allowance covers the £1,135.50 in employer’s NICs. The net tax saving is £2,388.30 per employee, at ^{_corporation_tax_small_profits} corporation tax.

Paying into a pension

If you’re self-employed via a limited company, you can also make employer contributions into your pension. Pension contributions are usually an allowable business expense, so these pension payments will reduce your profits, and therefore cut your corporation tax bill. At ^{_corporation_tax_small_profits} corporation tax, for example, every ^{_basic_rate_personal_savings_allowance} you pay into your pension will reduce your company’s corporation tax bill by £190. Plus, employers don’t have to pay NICs on pension contributions, which can save money compared to paying a salary.

Unlike personal contributions to a pension, the amount you can pay into your pension from a limited company isn’t directly tied to your income. Instead, contributions up to the ^{_annual_allowance} annual allowance can benefit from tax relief (^{_current_tax_year_yyyy_yy}), while contributions above this are hit by the annual allowance tax charge. This means that even if you’re taking a small salary from your company, you might be able to pay a larger amount into your pension via employer contributions.

It’s worth noting that contributions are subject to the ‘wholly and exclusively for the purpose of the trade or profession’ test. This means they must be at a reasonable level. While most contributions aren’t challenged by HMRC, there’s a chance they could be questioned if they’re deemed excessive.

Profiting from dividends

Dividends are a winner because dividend tax rates are lower than Income Tax rates, and you don’t have to pay any NICs on them, either as an employer or an employee. The limitation is that dividends are a share of after-tax profits - which means you can’t take dividends if your business is making a loss. You’ll also have to jump through the hoops of recording and declaring dividends, even if you’re the only shareholder.

Previously, company directors could withdraw up to ^{_money_purchase_annual_allowance} in dividends tax-free, to add on top of the standard personal allowance. However, after repeated cuts to the dividend allowance, only the first ^{_higher_rate_personal_savings_allowance} a year in dividends is tax-free since 6 April 2024. This means that nowadays you could potentially only earn up to £13,070 a year without paying any Income Tax or dividend tax. Above ^{_higher_rate_personal_savings_allowance} in dividends, you’ll pay dividend tax depending on your Income Tax band.

Dividend Tax Rates ^{_current_tax_year_yyyy_yy}

Taxpayer	Rate
Basic Rate Taxpayer	8.75%
Higher Rate Taxpayer	33.75%
Additional Rate Taxpayer	39.35%

Flexibility as a limited company

One of the other advantages with a limited company is that you can choose how much money to take out. You might, for example, leave some profits inside the company if taking higher dividends would push you into a higher Income Tax bracket.

At the other extreme, you might choose to take the tax hit on drawing higher dividends plus salary, to improve your chances of getting a mortgage.

As a sole trader, all your profits get added up for Income Tax purposes, and you can’t do much about the resulting tax bill other than upping your pension contributions or giving money to charity.

Sole trader vs limited company: what’s the tipping point?

Becoming a limited company had already become less attractive from a tax perspective in recent years. This was due to corporation and dividend tax rates ticking up, and the tax-free dividend allowance going down. From April 2025, the increase in the rate of employer NICs, and the decrease in the threshold when employers have to start paying them, adds extra expense if you’re the sole director and employee, and therefore can’t claim the Employment Allowance.

In ^{_current_tax_year_yyyy_yy}, you only pay less tax as a limited company once:

profits pass beyond the point where sole traders get hit by higher rate Income Tax;
you’re earning over £50,000; and
you’re the sole employee and director of the company and take a £12,570 annual salary with the balance as dividends.

With higher profits, you might even be better off financially as a sole trader.

However, the difference isn’t big. If you can afford to take some of the compensation from your company as pension contributions, rather than dividends, the limited company can become more attractive financially.

In practice, the best option for you will depend on your specific circumstances, including:

any income you might have on top of your business;
how much you want to pay into a pension; and
whether you wish to protect yourself from liability if your business fails.

Personally, the big relief for me is that although I definitely could have reduced my taxes as a limited company in the past, I haven’t missed out on massive amounts by staying as a sole trader. Given recent tax changes, I’m glad I don’t have to wrestle with the time, trouble and expense of running a limited company. Especially now that Companies House has greater powers to give financial penalties on registered companies who don’t meet their legal requirements, such as filing documents accurately and on time.

If you’d like to run your own figures, try searching online for a tax calculator to compare being a sole trader to a limited company, or consult an accountant.

Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith and Lynn’s videos about spending during lockdown and after lockdown.

Risk warning

Championing our customers’ views

In 2023 we changed our approach to voting at company Annual General Meetings (AGMs). Learn how we vote in line with our customers' views through Voting Choice, currently active in our Tailored, Tracker and 4Plus plans.

Like all private pensions, our plans invest in various companies around the world. The large amount of money invested in pensions means they have the collective power and potential to change the world for the better. In past years, investors in funds like the ones offered by PensionBee would have to vote in the same way as their asset managers. However, in 2023 we changed our approach to voting at company Annual General Meetings (AGMs). We survey our customers to understand what matters to them and how they’d like us to vote on their behalf. Though our customers can’t currently vote directly at the AGMs of the companies their pensions are invested in, we can vote in line with their views on their behalf. We’re able to vote this way using ‘Voting Choice’. Voting Choice is currently active in three of our plans, Tailored, Tracker and 4Plus. Together, these represent about 85% of our asset base.

Socially Responsible Investment (SRI) guidelines

We’re able to follow a voting policy of our choice. We’ve selected the Institutional Shareholder Services’ (ISS) Socially Responsible Investment (SRI) voting guidelines. This is the voting policy we think best reflects our customers’ views.

This policy included a set of proxy voting guidelines consistent with the two key objectives of socially responsible investors; financial and social. These show that like other investors, they’re looking to make a return on their investments but also expect the companies to behave ethically. These investors want companies to make a positive social and environmental impact.

2024 Voting Choice survey results

We seek our customers’ views throughout the year on a wide range of topics. In February 2024, we surveyed customers in the three Voting Choice plans, Tailored, Tracker and 4Plus. We asked our customers in these plans what issues concerned them most and what their priorities are on environmental, social and governmental (ESG) issues. As in 2023, the 2024 survey showed customers’ top ESG priority was ensuring that people are paid in line with the cost of living. Other top ESG priorities included issues on companies avoiding paying taxes and the impact of climate change.

The majority of customers surveyed also responded positively to a new question introduced in 2024. They said that shareholder resolutions and AGMs are the best methods by which to hold companies to account. They’re also a good way to express their dissatisfaction to the companies’ management teams. Our customers wanted us to remind management teams of their wider social and economic responsibilities. This means AGMs should be used to vote against directors who don’t properly manage these risks.

AGM voting examples

We also presented customers with real shareholder resolutions and asked them how they’d vote in each scenario. This was another way to help ensure the SRI voting policy best reflects customers’ views. A few of the scenarios are given below.

Walmart

Shareholders asked Walmart to provide workers with a living wage. In the US this is currently $25.02 per hour per worker. This is the minimum salary necessary to meet a family’s basic needs. The company’s management recommended voting against this increase. In contrast, our survey showed that 83% of our customers would have voted to increase employee hourly pay in line with the US living wage.

Shell Energy

Shareholders asked Shell Energy to align its existing 2030 target for the reduction of greenhouse gases to the goals of the Paris Climate Agreement. These goals include limiting global warming to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C. 74% of customers in our survey said they would have voted in favour of this resolution. This compares with 80% of Shell’s shareholders who voted against it at the AGM.

McDonald’s

McDonald’s had previously committed to reducing its use of antibiotics in all the beef it sells in its restaurants in 2018. Recently, it dropped its commitment to reduction targets completely.

Shareholders have asked McDonald’s to comply with the World Health Organization (WHO) guidelines on food-producing animals throughout its supply chains. The official result showed that 82% of shareholders voted against this proposed resolution. However, 88% of our surveyed customers said they would have voted for McDonald’s to comply with the WHO’s guidelines.

The key finding from the scenarios presented was that our SRI voting policy is broadly in line with our customers’ views. In each scenario, the way our customers said they would vote was reflected in the chosen voting policy. It supports shareholder resolutions and voting against management recommendations in most cases.

Continuing to listen to customer feedback

Overall, our survey showed our customers believe PensionBee is a positive voice in the investment landscape. It showed our SRI voting policy continues to reflect how most of the respondents in the Tailored, Tracker and 4Plus want us to hold companies accountable for their actions.

We’re thankful for our customers taking the time to share their thoughts with us. These are invaluable in helping us maintain a voting policy that aligns with the views of those invested in one of our Voting Choice plans.

“I like this approach, it’s unusual for pension savers to be consulted in this way and it’s important we act responsibly.”

“I appreciate this survey and the opportunity to share my opinions in this way. I’m delighted that PensionBee is concerned about using its powers to help climate change, workers’ rights, etc.”

We’ll continue advocating for sustainable and responsible practices within corporations. So far in 2024, we’ve worked with asset managers to raise awareness of voting issues related to health, climate and shareholder democracy. We’ll continue working with plans’ asset managers to expand Voting Choice across our remaining plans.

We’d like to continue encouraging our customers to share their thoughts and suggestions on voting and our approach to ESG by emailing engagement@pensionbee.com.

Risk warning

Pensioners lose £300 Winter Fuel Payments – unless claiming often ignored Pension Credit

Find out about the updates to Winter Fuel Payments and whether you should be claiming Pension Credit.

July product spotlight

In July's product spotlight we're highlighting our Pension Tax Relief Calculator to help you work out how much tax relief you could save on your pension contributions.

In recent years, we’ve developed a range of handy tools and calculators to help make it easier to plan financially for your retirement. They’ll enable you to understand things like how much income your pension could generate in retirement, the impact of inflation on your pension’s value and how to plan your pension withdrawals. With the information they provide, you can adjust how much you want to contribute to or withdraw from your pension. This month we take a look at our Pension Tax Relief Calculator and how it works.

Pension Tax Relief Calculator

Tax relief is one of the biggest benefits of saving into a pension. Most UK taxpayers get tax relief on their personal pension contributions, which means the government effectively adds money to your pension pot. The amount you receive depends on which tax band you’re in. Most basic rate taxpayers get a ^{_corporation_tax} tax top up; HMRC adds £25 for every £100 you pay into your pension, making it ^{_lower_earnings_limit}.

Our Pension Tax Relief Calculator helps you calculate how much tax relief you could get on any pension contributions you intend to make.

You can usually receive pension tax relief on personal contributions, up to ^{_annual_allowance} (2024/25) or 10^{_personal_allowance_rate} of your salary (whichever is lower). This amount is known as the annual allowance and any contributions you make over this limit are taxed at your highest rate.

How our Pension Tax Relief Calculator works

You’ll only need two pieces of information to use the Pension Tax Relief Calculator:

how much you earn annually; and
how much you’d like to contribute to your pension each year.

The calculator will show you how your desired total contribution will be made up between your contributions and government top ups. For example, if you want to make a total annual contribution of ^{_starting_rates_for_savings_income}, you’ll only need to contribute £4,000 as HMRC will add a ^{_corporation_tax} tax top up of ^{_basic_rate_personal_savings_allowance}.

How will it help you?

With this information, you may want to adjust how much you contribute to your pension. For example, once you know how much you’ll get in government top ups, you may decide to increase your personal contributions to reach your desired retirement income faster.

Another useful feature is understanding whether you can claim back extra tax relief, beyond the basic rate, and how much that could be. Your annual income will determine which tax band you’re in. Those in the higher or additional rate tax bands may be eligible for extra tax relief.

It’s worth noting that basic rate pension tax relief is automatically added to eligible contributions with PensionBee, however, if you’re a higher or additional rate taxpayer the extra tax relief won’t be automatically claimed for you, so you’ll need to complete a Self-Assessment tax return.

There are some restrictions around how tax relief on pension contributions works. For instance, you won’t be able to receive tax relief on contributions from your employer. You’ll find more of these restrictions and considerations listed under the calculator and in our in-depth article on pension tax relief.

Combining calculators

Once you know how much tax relief you could earn on your personal pension contributions you can use this information in our other tools. For example, if you decide to adjust your pension contributions after using the Pension Tax Relief Calculator, you could then use our Pension Calculator to see how increasing or decreasing your contributions could impact your projected retirement income.

Making contributions

With PensionBee you can contribute to your pension in just a few clicks with Easy bank transfer or by setting up a regular bank transfer. You can contribute once or on a regular basis. There are no minimum contributions, so you can save any amount, as often as you like.

Future product news

Keep your eye out for our next product blog or catch up on previous posts. We’re looking forward to spotlighting more of our handy features and free financial tools plus we’ve got lots of great new updates in the works we’re looking forward to bringing you this year. We’ll let you know what they are, how they can help you save for a happy retirement and how to get started.

Risk warning

How to use carry forward to make big pension payments

With pension carry forward if you didn’t use the full annual allowance, you can use the unused allowance from up to three previous years.

This article was last updated on 24/10/2024

Faced with rising inflation, I’ve ploughed more into my pension than ever before. By taking advantage of ‘carry forward’ rules, I’ve been able to pay in more than my ^{_annual_allowance} annual allowance for 2024/25 and still scoop up tax relief.

If you want to shovel more into your pension, get your skates on before the current tax year ends on 5 April 2025, and before one year of your allowance disappears.

How carry forward works

Here’s the deal. Every year, most taxpayers are allowed to pay up to 10^{_personal_allowance_rate} of their earnings into a pension, including a boost from tax relief. However, for most people this is capped at a maximum of ^{_annual_allowance} for 2024/25, up from £40,000 before April 2023.

(I say ‘most people’, because if your income plus pension contributions exceeds ^{_adjusted_income} a year, the tax man starts chipping away at your annual allowance, reducing it by £1 for every £2 over until the allowance dwindles to ^{_money_purchase_annual_allowance} for 2024/25. Also, once you begin accessing your defined contribution pension flexibly, the money purchase annual allowance (MPAA) is activated and reduces your annual allowance. The money purchase annual allowance is ^{_money_purchase_annual_allowance} for 2024/25).

But if you didn’t pay in your full whack of annual allowance in previous years, you can ‘carry forward’ unused allowance from up to three previous tax years. That’s a maximum of ^{_threshold_income} for 2024/25, in theory! However, ‘carry forward’ is limited by the amount you earn that year. If, say, you earn £70,000 during the tax year, you can’t pay more than that into your pension, no matter how much unused annual allowance you racked up in previous years. There’s also small print about actually being a member of a pension scheme during the previous years.

Let’s be clear: carry forward is only useful if you’re lucky enough to earn more than ^{_annual_allowance} a year (for 2024/25) and lucky enough to have a big lump sum to pay into a pension. But if so, carry forward can be really useful for example if you’ve had a big bonus at work, received an inheritance or had a particularly good year with your own business.

More about pension carry forward rules.

Why I’m keen to pay more into my pension

Turns out I have more reason than I expected to plough more into my pension, rather than spending up a storm.

Afford to retire

The primary reason for pension saving is to fund a more comfortable retirement. I previously spent a week trying to live on the 2021/22 full new State Pension and it was not fun. By beefing up my pension pot, I’m hoping to enjoy retirement with fewer money worries.

Plug childcare gaps

I chose not to go back to my office job after maternity leave, but went freelance instead. This meant I could spend more time with my children and didn’t have the eye-watering expense of full-time nursery fees - but it also meant I wasn’t earning enough to make mega pension contributions. Now that I’m earning more, I’m keen to narrow my own gender pension gap.

Bridge the self-employment gap

As I’m self-employed, I don’t have an employer to contribute to my retirement savings. It all falls on my shoulders. Now that my children are both at secondary school, and my work has ramped up, I can afford to plough more into my pension.

Maintain my own income

I may be happily married, but I’m keen to have my own pension, rather than relying on my husband’s retirement savings to fund my every whim. A man is not a financial plan.

Beat inflation, now and in future

Faced with rising inflation, I’d far rather move spare money into the stock market, in the hope of higher returns, rather than seeing the value of my cash eaten away in a savings account. Rising inflation also means I reckon I need to stash more in my pension to cover the higher costs when I stop working.

Scoop up free money

By investing via a pension rather than an Individual Savings Account (ISA), I automatically get 25p added to every £1 in basic rate tax relief, so it’s off to a great start!

Cut my tax bill

Plus, as a higher-rate taxpayer, I can claim extra tax relief on my Self-Assessment tax return, and cut my tax bill.

Not long to wait

Also: old.

As I’m now 53, I have the peace of mind that I don’t have to wait too long before I can whip money out again, if I really need it. I’ll be able to withdraw cash from my pension from the age of 55, although that age limit is rising to 57 from 2028. So long as I keep any withdrawals below the ^{_corporation_tax} tax-free lump sum, it shouldn’t prevent me from making more pension contributions afterwards.

Escape Inheritance Tax

But if my husband and I go under a bus tomorrow, we also know any money in our pensions can go to our kids without being hit by ^_higher_rate Inheritance Tax (IHT). That’s because if you die before your 75th birthday and haven’t started drawing your pension it can usually be passed to your beneficiaries tax-free. Soaring property prices have pushed us above the tax-free thresholds, and into the firing line – but money in pensions is protected from IHT.

Calculating carry forward

Brace yourself for the calculations if you want to take advantage of carry forward.

I’ve had to track down how much I’ve paid into my defined contribution pensions, work out my unused annual allowance, compare it to my earnings in the current tax year, and calculate how much I could add before the tax top up.

Current earnings

As I can’t pay more into my pension than my earnings in the current tax year, I figured that was a good place to start. If you earn less than ^{_annual_allowance} (the allowance for 2024/25) a year, for example, you don’t have to faff around with carry forward as you’re not allowed to pay in more than the annual pension allowance anyway.

If you earn say £80,000, you can contribute up to ^{_annual_allowance} as your maximum annual allowance, but only carry forward a maximum of ^{_isa_allowance} from unused allowances in previous years.

As I’m self-employed, I couldn’t just check my payslips or ask HR what I’d earned between 6 April last year and 5 April the next. Instead, I had to work out my profits, by totting up my turnover and deducting allowable expenses.

If you’re employed, your employer can make an ad hoc pension contribution that’ll count towards your carry forward - it just won’t attract tax relief as it’s paid gross.

Pension payments

Next, I checked what I’d already paid into pensions since 6 April last year, and in the three previous tax years. Annual allowance includes not just your own pension contributions that leave your bank account or pay packet, but also basic rate tax relief added on top and any employer contributions. If you pay into pensions anywhere else - at work or in other private pensions - you’ll need to add in those contributions too.

Don’t forget any future contributions that’ll hit your pension account before the tax year ends on 5 April 2025, for example from a regular Direct Debit or from salary deductions.

In practice, checking my pension payments via the PensionBee app was easy - tap on ‘Funds’ at the bottom of the screen, then ‘Add and manage contributions’, and it shows the total contributions by tax year, including the tax top ups. You can also find this on your PensionBee account online by clicking the ‘Contributions tab’. I tracked down my total contributions in previous years from my tax returns, but as an employee you could also find it on your P60s.

Unused allowance

To discover my unused allowance, I worked out the gap between my total pension contributions each year and the annual allowance this year and in the previous three tax years - so ^{_annual_allowance} for both 2024/25 and 2023/24 and £40,000 for ^{_tax_year_minus_three} and 2021/22.

Say for example, you’ve stashed £12,000 in your pension so far this year including tax relief, but only ^{_money_purchase_annual_allowance}, £8,000 and ^{_starting_rates_for_savings_income} respectively in the previous three years. The table below shows the unused allowance each year, and total across all four tax years.

Tax year	Pension contribution	Annual Allowance	Unused allowance that year
2024/25	£12,000	^{_annual_allowance}	£48,000
2023/24	^{_money_purchase_annual_allowance}	^{_annual_allowance}	£50,000
^{_tax_year_minus_three}	£8,000	£40,000	£32,000
2021/22	^{_starting_rates_for_savings_income}	£40,000	£35,000
Total			£165,000

For peace of mind, there’s even a handy dandy calculator on the government website, to check if you’ve unused annual allowance.

With carry forward, you first use your allowance from the current tax year (e.g. 2024/25) and then go back three years and start with any unused allowance from that year (e.g. 2021/22), then move forward to the next one (e.g. ^{_tax_year_minus_three}) followed by the most recent (e.g. 2023/24).

Potential contribution

Lacking a six-figure salary and a six-figure lump sum, I focused more on how much extra I could add to my contributions in the current tax year to match my earnings, then checked I definitely had enough unused allowance to cover anything over ^{_annual_allowance}.

So for example, if you earn £80,000 a year, and have already paid £12,000 into a pension, you could potentially pay another £68,000 into your pension. If you’ve already contributed £12,000, you have £48,000 left out of the current 2024/25 ^{_annual_allowance} annual allowance.

That leaves a maximum of ^{_isa_allowance} to be covered by carry forward (£68,000 gap less £48,000 from the current year’s allowance), so you need to check you have at least that much in unused annual allowance stretching back over the last three tax years.

The last step is to work out how much to transfer into your pension. You can’t just bung in £68,000 (even if you had that amount), because basic rate tax relief is automatically added on top. In practice, you need to add 8^{_personal_allowance_rate}, which in this example works out as £54,400 (8^{_personal_allowance_rate} x £68,000).

Practical tips for carry forward

After taking advantage of carry forward, here are my top tips:

Remember you can’t contribute more than your earnings in the current tax year, no matter how much unused pension allowance you have.
Don’t count investment income, savings interest, buy-to-let rental income and dividends when working out your relevant UK earnings for the standard annual allowance. Subject to the tapered annual allowance? Then all your taxable income counts towards your threshold income.
Allow for the tax relief that’ll be added on top, when calculating your contributions. If you want to add ^{_money_purchase_annual_allowance} in total, for example, you only need to pay in £8,000.
Double check the details when contributing by internet banking – the sort code, bank account number and any reference such as your pension account number. If it’s a personal pension and you’ve made contributions beforehand, you should be fine choosing an existing payee.
Triple check that you’ve not made any taxable withdrawals from your pensions, as this triggers the money purchase annual allowance (MPAA) and blocks you from using the carry forward rule.
Consider making a small payment first to check it definitely ends up in the right place, then paying in a larger sum afterwards.
Don’t leave pension contributions to the last minute. If you want contributions to be counted in the tax year ending 5 April 2025, do the transfer several days beforehand, to make sure it’s credited before the deadline.

Faith Archer is a Personal Finance Journalist and Money Blogger at Much More With Less. Check out Faith and Lynn’s videos about spending during lockdown and after lockdown.

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.

Why are financial markets volatile these days?

Find out how the impact of sticky inflation is creating short-term volatility in global stock markets and why diversification is crucial in times like these.

April has been a turbulent month for global economies and stock markets for lots of reasons. Some of the major factors include:

reports of sticky inflation;
decade-high interest rates; and
geopolitical uncertainty.

The current economic landscape presents several challenges, including persistently high mortgage rates and rising household goods prices. These factors create a stifling effect on new economic activity, making it harder for consumers to purchase new items and impeding businesses’ ability to invest in growth.

Keep reading to find out how inflation can impact short-term volatility and why diversification is crucial in pensions.

How different economies have been reacting

Different economies around the world have been reacting in various ways to these challenges. Here’s a breakdown of how the major global players are reacting to these unfolding events.

US

The US is experiencing higher than expected inflation, leading the Federal Reserve to delay interest rate cuts. This means that borrowing will continue to be challenging, and interest payments will remain high for governments, businesses and consumers. The upcoming US presidential election, set to take place in November this year, adds to this uncertainty in the US economy.

The ‘Magnificent Seven’ companies

There are growing concerns about some of the top-performing companies in the US stock market, often referred to as the ‘Magnificent Seven’. The ‘Magnificent Seven’ comprises Apple, Microsoft, Amazon, Alphabet (Google’s parent company), Nvidia, Meta (Facebook’s parent company), and Tesla. Together, the ‘Magnificent Seven’ make up more than 29% of the S&P 500’s total valuation.

These companies have been very successful in the past year, with lots of excitement about a potential ‘Artificial Intelligence (AI) gold rush‘. However, investor sentiment has shifted in recent weeks as it appears this new technology will not revolutionise industries as fast or efficiently as originally speculated. As such, the value of their share prices has gradually dropped in the past month.

And how do pensions come into this? If you look at the top 10 holdings in your pension, you may find that you’re invested in these companies.

UK and Europe

In the UK and Europe, inflation seems to be decreasing at a faster rate raising hopes for earlier interest rate cuts. However, this decline in inflation is partly due to economic activity already being depressed and unemployment rates rising. The Bank of England, for example, has stated that inflation could fall to its 2% target in the next few months before rising slightly again.

Middle East

Geopolitical tensions in the Middle East are escalating, with reports of direct military action between Israel and Iran. These tensions, along with other concerns, have contributed to market volatility. It’s worth noting that the Middle East is responsible for producing a significant portion of the world’s crude oil. Stability in the region is crucial for maintaining a stable global oil market.

Why pension diversification matters

Right now there’s uncertainty about whether the current volatility in the market is temporary or will continue for a while. The main reason behind this volatility seems to be inflation, which refers to the general increase in prices of goods and services over time. One thing to note is that different countries are experiencing varying economic situations. Some are doing well while others are facing challenges. Because of this, it’s crucial to consider diversification.

Most pensions are already diversified, across a range of locations and asset types. This means your retirement savings could be invested in company shares, bonds, cash, property and other assets, across the globe, depending on the plan you’ve chosen. As a result, a decline in one type of asset or location can be offset by growth in the others, with the aim of achieving not only balance, but ultimately growth over the long term.

If you’re nearing retirement

It’s impossible to completely isolate your retirement savings from the wider economy - even investing in cash means you could lose real value due to inflation - but being invested in a pension plan that’s designed for those approaching retirement could reduce its risk of losing value.

PensionBee’s under 50’s default plan Global Leaders invests in around 1,000 of the world’s largest and most recognised public companies. This approach offers customers a greater opportunity to grow their pension savings before they retire.

For PensionBee customers nearing retirement, we have a couple of other plans that are designed to lower your exposure to market volatility.

4Plus Plan - Aims to achieve long-term growth of 4% per year above the cash rate, by managing your money actively across a range of investments.
Preserve Plan - Makes short-term investments into creditworthy companies. This reduces risk and preserves your money.

When markets are down many people are tempted to withdraw from their investments under the assumption their money is safer in their pockets than in stock markets. Or even move their pension because they believe their provider is to blame for the losses caused by market volatility.

It’s easy to forget right now that investments go up, as well as down. So the more you withdraw, the less you’ll have invested to recover when markets rise in value. Withdrawing during a downturn guarantees a loss, whereas waiting for markets to bounce back gives you an opportunity to regain and grow your investments again.

Have a question? Get in touch!

Again, it’s important to try not to fixate on short-term balance fluctuations. Short-term fluctuations are normal and expected, and even the portion of your pension that remains invested after you retire should continue to recover over the long-term.

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

What happened to pensions in March 2024?

How did the stock market perform last month and how does that impact your pension plan? Find out all this and more.

This is part of our monthly pension update series. Catch up on last month’s summary here: What happened to pensions in February 2024?

The past few years have been challenging for the UK economy, with the COVID-19 pandemic and energy price spike still casting a shadow. However, this year’s Spring Statement painted a more optimistic picture for economic growth and recovery. The Chancellor, Jeremy Hunt, highlighted the government’s progress towards their key priorities:

Keeping inflation down - after peaking at 11.1% in October 2022, inflation fell to 3.4% in the 12 months to February 2024.
Growing the economy - the economy decreased for two consecutive quarters in the second half of 2023 leading to a ‘technical recession’, but overall consumer confidence remains strong.
Get debt falling - while debt has grown from 85.1% of GDP in December 2022 to 88.3% in November 2023, it’s expected to fall in the next year based on the current government’s spending plans.

Keep reading to find out how markets have performed this month and what the Spring Statement could mean for your pension savings.

What happened to stock markets?

In the UK, the FTSE 250 Index rose by over 4% in March. This brings the year-to-date performance close to +1%.

Source: BBC Market Data

In Europe (excluding the UK), the EuroStoxx 50 Index rose by over 4% in March. This brings the year-to-date performance close to +12%.

Source: BBC Market Data

In North America, the S&P 500 Index rose by over 3% in March. This brings the year-to-date performance close to +1^{_personal_allowance_rate}.

Source: BBC Market Data

In Japan, the Nikkei 225 Index rose by over 3% in March. This brings the year-to-date performance close to +^{_scot_intermediate_rate}.

Source: BBC Market Data

In the Asia Pacific (excluding Japan), the Hang Seng Index remained flat in March. This brings the year-to-date performance close to -3%.

Source: BBC Market Data

Overall, major global markets, especially in the US and UK, have performed well over the past month and quarter, likely leading to upticks in your pension balance.

What does the 2024 Spring Statement mean for your pension?

The combination of an ongoing cost-of-living crisis and high taxation has put a squeeze on households up and down the country. With a UK general election due later this year, all eyes were on the government’s Spring Statement to discover what financial relief there may be. On 6 March, the Chancellor made various policy announcements - including a much welcomed reduction in National Insurance.

Here’s the key Spring Statement 2024 points at a glance:

National Insurance cut from 1^{_personal_allowance_rate} to 8%;
Child Benefit earnings threshold raised;
further ^{_starting_rates_for_savings_income} ISA allowance for ‘UK ISA’;
top capital gains tax rate on property reduced to 24%;
furnished holiday lettings tax breaks scrapped;
VAT threshold rising from £85,000 to £90,000; and
non-UK domiciled individuals (“non-doms”) status abolished.

Depending on the impact of these changes on your household finances, you may want to consider whether you have additional income to increase your pension contributions and grow your pension pot for the long term.

Read more about these changes in our blog, How the 2024 Spring Statement impacts your pension.

This is part of our monthly pension update series. Check out the next month’s summary here: What happened to pensions in April 2024?

Have a question? Get in touch!

Risk warning

How PensionBee’s plans are performing in 2024 (as at Q1)

Find out the performance of the PensionBee plans at the end of Q1 2024, when compared to the UK and US stock markets.

This is part of our quarterly plan performance series. Catch up on last quarter’s summary here: How PensionBee’s plans are performing in 2023 (as at Q4).

2024 began with a market upswing, as the damage from the COVID-19 pandemic and global energy crisis moved even further into the rearview mirror. On the horizon there was excitement about the Artificial Intelligence (AI) revolution and stabilising economies in many developed countries. In short, there was a positive outlook for this year.

Looking ahead at what’s in store for 2024, the financial information provider, S&P Global Market Intelligence, predicted that:

China’s economy would recover slowly;
Europe and US stock markets would fall short of their potential;
inflation would moderate further; and
interest rates would begin to be cut.

It’s too early to know whether the year will play out this way, but early indications support these predictions. Aside from China, all major stock markets have experienced growth in the first quarter. The wildcard has been the impressive success of Japan’s stock market, the Nikkei 225.

Keep reading to find out how global markets and our PensionBee plans have performed over 2024 so far.

Please note that many stock markets experienced volatility in April 2024. To learn more you can read: Why are financial markets volatile these days?

2024 figures cover the period between 1 January and 31 March 2024.

Company shares in 2024 (as at Q1)

What are company shares?

Global stock markets

Global stock markets had a good start to the year, with strong gains in the first quarter. This was mainly due to a strong US economy and continued momentum around AI. Investors were hopeful about interest rate cuts, which also contributed to the rise in share prices.

Index	Investment location	Performance over Q1 2024 (%)	Equity proportion (%)
FTSE 250 Index	UK	+1.^{_personal_allowance_rate}	10^{_personal_allowance_rate}
EuroStoxx 50 Index	Europe (excluding the UK)	+12.4%	10^{_personal_allowance_rate}
S&P 500 Index	North America	+10.2%	10^{_personal_allowance_rate}
Nikkei 225 Index	Japan	+20.6%	10^{_personal_allowance_rate}
Hang Seng Index	Asia Pacific (excluding Japan)	-3.^{_personal_allowance_rate}	10^{_personal_allowance_rate}

Source: BBC Market Data

PensionBee’s equity plans

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.

Plan	Money manager	Performance over Q1 2024 (%)	Equity proportion (%)
Shariah Plan	HSBC (traded via State Street Global Advisors)	+12.5%	10^{_personal_allowance_rate}
Fossil Fuel Free Plan	Legal & General	+8.6%	10^{_personal_allowance_rate}
Impact Plan	BlackRock	+6.6%	10^{_personal_allowance_rate}
Tailored (Vintage 2061 - 2063) Plan	BlackRock	+8.4%	10^{_personal_allowance_rate}
Tailored (Vintage 2055 - 2057) Plan	BlackRock	+8.3%	10^{_personal_allowance_rate}
Tailored (Vintage 2049 - 2051) Plan	BlackRock	+7.9%	96%
Tailored (Vintage 2043 - 2045) Plan	BlackRock	+6.9%	85%
Tracker Plan	State Street Global Advisors	+7.1%	8^{_personal_allowance_rate}
Tailored (Vintage 2037 - 2039) Plan	BlackRock	+5.8%	72%
4Plus Plan	State Street Global Advisors	+6.5%	71% ^^
Tailored (Vintage 2031 - 2033) Plan	BlackRock	+4.7%	59%

^Equity % at 31 March 2024, asset allocation changes on a weekly basis due to the plan’s actively managed component.

Bonds in 2024 (as at Q1)

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. A bond yield is the annual return that an investor gets from a bond. Due to their historical stability and predictability, bonds are a popular choice for shorter-term investors such as retirees who plan to draw down in the near future. Bonds are also known as ‘fixed-income securities’.

Global bond markets

The widespread expectation going into 2024 was that inflation and interest rates would swiftly come down over the course of the year. So far inflation has slowly crept down. As a result, Central Banks have been hesitant to declare victory on inflation and interest rates have been held at their current levels in most economies.

Fund	Source	Performance over Q1 2024 (%)	Fixed-income proportion (%)
Schroder Long Dated Corporate Bond Fund	Morningstar	-1.3%	91%

Source: Morningstar

PensionBee’s fixed-income plans

Plan	Money manager	Performance over Q1 2024 (%)	Fixed-income proportion (%)
Pre-Annuity Plan	State Street Global Advisors	-1.5%	10^{_personal_allowance_rate}
Tailored (LifePath Flexi) Plan	BlackRock	+2.9%	6^{_personal_allowance_rate}
Tailored (Vintage 2025 - 2027) Plan	BlackRock	+3.5%	^{_scot_top_rate}

PensionBee’s money market plans

Plan	Money manager	Performance over Q1 2024 (%)	Cash equivalent proportion (%)
Preserve Plan	State Street Global Advisors	+1.3%	10^{_personal_allowance_rate}

Have a question? Get in touch!

Risk warning

What does the abolition of the lifetime allowance (LTA) mean for your savings?

We look at the scrapping of the pension lifetime allowance (LTA) and what it means for your retirement savings.

In last year’s Spring Budget, the government announced the lifetime allowance (LTA) would be scrapped from 6 April 2024. Up until 5 April 2024, the LTA was the amount an individual could build up across their pension pots before paying a tax charge. It was introduced back in 2006 and was intended to simplify the way pensions were taxed. Since 2006, the LTA has been through many changes with the amount ranging from £1 million to £1.8 million.

As well as scrapping the LTA altogether, Chancellor Jeremy Hunt increased the annual tax-free pension allowance from £40,000 to ^{_annual_allowance} a year, and the money purchase annual allowance (MPAA) from £4,000 to ^{_money_purchase_annual_allowance}. These three changes were aimed at encouraging an estimated 3.5 million people in their 50s back into the workforce.

What was the lifetime allowance?

Before it was scrapped, the LTA stood at ^{_lump_sum_death_benefits_allowance} (2023/24). This meant that any amount an individual saved over the LTA would be taxed as income at your marginal tax rate when withdrawing. Your marginal rate of tax is the highest tax bracket into which your income falls. So if you had a pension pot worth £1.2 million, you’d have been £126,900 over the LTA. This is the amount that you would’ve been taxed at either:

^{_pension_release_tax_amount} if you took it as a lump sum; or
^{_corporation_tax} if you took it any other way, for example to buy an annuity or via drawdown.

Income tax would then be paid on any further pension withdrawals.

What is replacing the lifetime allowance?

The LTA is being replaced with three different allowances.

The lump sum allowance (LSA) - you can take ^{_corporation_tax} of your pension as Pension Commencement Lump Sum (PCLS), also known as tax-free cash, once you’ve reached age 55 (rising to 57 from 2028). This allowance is per person, not per pension scheme so the maximum you can take across all of your pension pots is £268,275.
The lump sum and death benefit allowance (LSDBA) - set at ^{_lump_sum_death_benefits_allowance}, this allowance incorporates both tax-free lump sums someone takes while alive and lump sums paid on death. If someone passes away before the age of 75, death benefits are paid tax-free to the beneficiaries. Any death benefit payments made in excess of the ^{_lump_sum_death_benefits_allowance} limit will be taxed at the beneficiary’s marginal rate of income tax. Find out how you can set up your beneficiaries in your PensionBee account.
The overseas transfer allowance (OTA) - set at ^{_lump_sum_death_benefits_allowance}, is a separate allowance which is reduced by any transfer payments made to a qualifying recognised overseas pension scheme (QROPS).

These allowances may be higher if the individual has lifetime allowance protection - a safeguard HMRC put in place to protect pension savings from previous reductions in the LTA. If you built up a sizeable pension pot before 6 April 2006 and registered for enhanced and/or primary protection with HMRC then this may mean you have a higher LSA or LSDBA. There are a further two protections applicable to eligible pension savers:

Find out more about these on our pension glossary.

How much can I put into my pension now?

When the Chancellor scrapped the LTA, he also raised the tax-free annual allowance to ^{_annual_allowance} or 10^{_personal_allowance_rate} of your salary (whichever is lower). This increase to the pension annual allowance was the first rise since April 2010.

For example, Jane, 55, is on an annual salary of £50,000 and pays around ^{_starting_rates_for_savings_income} a year into her workplace pension. Her employer pays in another £4,000 so her total pension contributions are £9,000 a year. She inherits a sum of ^{_high_income_child_benefit} and wants to put some of that into her pension. After her usual pension contributions are taken into account she can put in an extra £41,000 (her £50,000 income minus the £9,000 that’s already gone into her pension pot via contributions).

If I’m retired can I still put money into my pension?

When the Chancellor raised the annual pension allowance he also increased the money purchase annual allowance (MPAA) to ^{_money_purchase_annual_allowance}. The MPAA‘s the amount of money someone who has already retired can put into their pension each year before tax. By raising this allowance the government hopes to encourage early retirees back into work. It’s estimated that in 2020/21, a quarter of pension savers over 55 contributed more than £4,000 to their pensions.

Will the lifetime allowance be re-introduced?

With a UK general election due at some point this year, there’s speculation an incoming Labour government may bring back the LTA. The removal of the allowance shouldn’t be taken for granted, so pension savers should consider using the new higher allowance(s) while they’re available.

Samantha Downes is a financial journalist and has written for most national newspapers and women’s magazines. She is also the author of two finance guides and has set up the Substack PumpkinPensions to help guide people looking to save more towards their future.

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E28: The Bank of Mum and Dad - what's the impact on your pension? With Mark Bogard, Rotimi Merriman-Johnson and Becky O'Connor

The Pension Confident Podcast

PensionBee Content

31 May 2024

minute read

May 2024

Inside the BeeHive

Money Matters

The following is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 28, watch on YouTube, or scroll on to read the conversation.

PHILIPPA: Hello, this is The Pension Confident Podcast. I’m Philippa Lamb and today we’re discussing a hot topic: the Bank of Mum and Dad. Do you help out your adult children with money? For many young people, it’s the only way to afford university or maybe get a foot on the property ladder. For others, it may be help with ongoing costs like childcare bills or even being the main source of childcare. But how might relying on the Bank of Mum and Dad affect family relationships? And what can it mean for your own finances, especially when around one-in-four British families with children are single parent households? And what about grandchildren? You might find yourself contributing all over again. Should the Bank of Mum and Dad stay open for business indefinitely?

Well, today’s guests are here to help us answer that question. Mark Bogard is CEO of The Family Building Society. Hello, Mark.

MARK: Hello. Really good to be here.

PHILIPPA: I know you’ve done a lot of work in this area. A lot of research.

MARK: Yes, it’s how we set The Family Building Society up 10 years ago. We spoke to families about how they manage their money between the generations. So we spent a lot of time listening to people about this.

PHILIPPA: Lots of focus groups.

MARK: Yeah.

PHILIPPA: Rotimi Merriman-Johnson’s back with us again, he’s a Personal Finance Expert and Founder of Mr MoneyJar. It’s nice to see you, Rotimi. Am I right in thinking you’ve just qualified as an Independent Financial Adviser (IFA)?

ROTIMI: I did. I passed my exams in November.

PHILIPPA: So you’re properly an Independent Financial Adviser?

ROTIMI: I’m a proper one.

PHILIPPA: Good for you! Joining us from PensionBee, podcast regular, Becky O’Connor, Director (VP) Public Affairs. Hello, Becky.

BECKY: Hello.

PHILIPPA: The usual disclaimer before we start, please remember that anything discussed on this podcast shouldn’t be regarded as financial advice or legal advice. And when investing, your capital is at risk.

The Bank of Mum and Dad in practice

PHILIPPA: OK, to point out what a big story this is, this statistic caught my eye. This is the Institute for Fiscal Studies (IFS) and it says almost a third of young people receive at least one cash transfer. This is during their 20s or early 30s and it’s most commonly from a parent. It’s a lot, isn’t it? And as far as I can tell from this also, I saw a piece. Yes, I did. I saw a piece in The Times recently that said, one-in-six grandparents are regularly supporting kids or grandchildren. Did you get support from your parents?

BECKY: I have to admit, we did get a little cash injection from my in-laws when we bought our first home, because I was six months pregnant at the time, and I think they were worried that we were going to end up renting forever. So they did give a very timely gift.

PHILIPPA: Yeah, I mean, that’s the thing. Mark? You have children?

MARK: So my father nagged me and nagged me and nagged me and nagged me to buy a property, because it was the best thing I could ever do in my whole life. So in 1988, I bought my first flat with a 10^{_personal_allowance_rate} mortgage from Barclays at 7.^{_corporation_tax}.

PHILIPPA: Ow!

MARK: 18 months later, the flat was worth 8^{_personal_allowance_rate} what I paid for it and interest rates had gone up to 15.^{_corporation_tax} - because everyone got [a] variable [rate] in those days. So my mortgage was now more than my salary.

PHILIPPA: Oh!

MARK: So I spoke to my father because I couldn’t afford to eat anymore. So over the next 18 months he gave me some money each month, and then interest rates came back down again. But the really interesting thing in this story is about two years later, at some family lunch or dinner, my father leant across and said, “Mark, when am I going to get that money back?” And what I thought was a gift to get me out of the problem he’d got me into...

PHILIPPA: Right.

MARK: It’s a really important point because one of the things we see is that intrafamily money exchanges: one side thinks it’s a gift, the other side doesn’t. All of these things, people have huge misunderstandings. So, that was - I gave him the money back.

PHILIPPA: Interesting. We’re definitely going to get into that because I think you’re absolutely right. The lack of clarity around, “is this money given? Is it a gift? I’m expecting it back”. Rotimi, have you benefited from this yourself? From your parents? Did they help you out?

ROTIMI: No, I can’t say that I have. My parents provided a lot to me in terms of my upbringing and education, but I found myself in a position where I’m transferring money to parents and grandparents. I’m of the generation that’s more likely to help out.

PHILIPPA: Ah, so you’re paying it back? Yeah, OK. Yeah, it’s interesting. But at the point you make is a good one because I think my parents would have said the same, that they gave us a great upbringing, and then when we were launched as adults, we were on our own. But I’m wondering, I mean, I’m a parent myself. You’re a parent, you’ve got kids. Morally, I mean, is there a moral question here? Should we be helping them out? Should they be standing on their own feet?

BECKY: Assuming that you can, then I think a fairly tempered approach to giving is overall a good one because I think you can actually sometimes do more harm than good if you’re too generous, because that can then be very demotivating for them in terms of finding their own way in life. But clearly, there are some big structural problems, particularly in the housing market, that are creating barriers for people living the life that previous generations took for granted. And so naturally, you want to do what you can to help.

Planning for predictable financial support

PHILIPPA: So if we start at the beginning, when do we feel you should even start thinking about your children’s future financial needs? Because I think most parents know at some stage, I mean, obviously, there’s the cost of bringing them up. But you kind of know that if they go off to university, or potentially think about buying property, you’re probably going to be helping. So when do you start?

ROTIMI: There’s certainly a lot of interest for the people that follow me, around saving as early as possible, so that they can benefit from the compounding going forward. Where people are unsure is whether they should save it into the Junior SIPP or Junior ISA (JISA) environment - or use their own one. Or whether they should even let their children know that the money is being saved.

PHILIPPA: Yes. Just thinking about the beginning of this, have you got Junior ISAs (JISAs) for your children?

BECKY: Yes. I don’t really consider those Junior ISA as a deposit fund. I consider those probably they’re more likely to go on cars or university costs or something like that. Something a bit more short-term. But in terms of other savings for them, I think it’s probably a good idea to use your own ISA if you’re worried about how they might spend it before they really need it, if the purpose is a house deposit.

PHILIPPA: They don’t necessarily need to know, do they, [if] you’re saving? Might be quite helpful, not in some ways.

BECKY: I think it’s probably a good idea to hold back a little bit. You don’t want to encourage complacency to save for themselves as well. They might think they don’t need... If you’re saving for them, they might think, “Well, I don’t need to worry then. I’m fine”.

PHILIPPA: Yeah, it should be an ‘add-on’, shouldn’t it? Not an ‘instead’. Yeah. Also, we’re making the assumption people can afford to do this at all because obviously not all households have any spare cash at all to save along this line. There’s a clear divide, isn’t there? Between the ‘haves’ and the ‘have nots’.

MARK: That’s a key part. I think a third of households have less than £100 saved up.

BECKY: I think often [for] parents, their own wealth is actually in their own property. So, it might be that they don’t have any savings, and so that might be their main store of wealth.

PHILIPPA: And they’re living in their investment?

BECKY: They’re living in their investment. Often, that’s actually the pension as well. So I think sometimes people do look to what they can do with their own property - sell it? That often does happen when people are thinking about helping out their kids, too.

ROTIMI: To give a bit more of a flavour to the divide, if I may. When I was reading about a report, also from the IFS, called ‘Who gives wealth transfers to whom and when‘. I found these statistics quite interesting. So, children of [university graduates] and home-owning parents receive six times more than children of renters. White young adults are three times more likely to receive gifts than Pakistani or Bangladeshi recipients. That was what was said in the report. As someone of African heritage, I can also anecdotally corroborate the same for someone from my background. But also wealthier recipients were more likely to use gifts for marriage and for university, whereas the poorer households were more likely to use the gifts to pay off debt or to buy a new car.

Help while your child’s studying

PHILIPPA: Yeah, really interesting. I think the first withdrawal for most people from the Bank of Mum and Dad, if there’s one at all, it comes in early adulthood, doesn’t it? I think it’s about 35% of kids go on to university. Obviously, not all of them do, but it’s a big number. Others may be training or starting the world of work, but on a very low salary. So that phase when we’re helping kids to get ‘job ready‘ and they’re cash poor, I wonder whether people realise just how much they might need to help out at that stage. I was surprised when my son went to university, just how much money was involved in that for me.

BECKY: I think you have your own frame of reference based on your circumstances when you were that age. And obviously, things have changed a huge amount in terms of financial demands quite early into adult life. In reality, if you’re going to help with those things in a meaningful way, that does require, and assuming you’ve got the means, it does require quite a lot of planning in advance because they’re steep. Particularly if you’ve got more than one child.

PHILIPPA: Maintenance loans are really, really low. Rents are really high. It’s a lot of money if you’re able to help out. It’s interesting. And of course, it can go on and on. Because in my generation, we largely did, if we went and did a degree, it was a three or potentially, possibly a four-year degree. Now it’s a Masters, isn’t it? ^{_corporation_tax} of young people [are] doing a masters degree now. So we’re not necessarily talking about three years, could be five, could even be six. Should kids work when they’re at university? I did. I worked right through.

BECKY: I did. I’ve been working since I was 14.

PHILIPPA: Me too.

BECKY: It’s depressing!

PHILIPPA: Paper round, Becky? I know some people don’t like the idea of their kids working when they’re students, they’re thinking it might depress their grades.

MARK: You get long holidays. I mean I used to - I did some very funny holiday jobs, but there was one in particular I ended up doing which was market research, ringing people up and asking them questions. If I worked from 9am till 9pm, I got paid £30. In those days, you could go on holiday in the south of France for £10 a day. So, every day...

PHILIPPA: Those were the days!

MARK: ... Every day I did it, Market Investigations Limited, was three days in a tent in the south of France.

ROTIMI: I fully support kids working where they can. My youngest brother’s 18, and he did last year at a fast food restaurant and he managed to save up ^{_basic_rate_personal_savings_allowance} over that period. For that reason, he’s really responsible with money.

PHILIPPA: I’m thinking you’ve been a good influence on him, Rotimi?

ROTIMI: I’d like to think that I have been!

Funding your child’s big adult milestones

PHILIPPA: If we think about what happens next in young people’s lives, and we think about they’re through university. Back in the day, it was get a job, move out. Now, definitely not. I mean, most people are heading home again, aren’t they? After university, because rents are so high, maybe they haven’t yet got a job. I think we’ve got a huge proportion. What is it? The share of 20 to 24-year-olds living with their parents rose to over half in England and Wales. This was between 2011 and 2021, ‘the Boomerang Generation’. This is the Office for National Statistics. So this is pretty much the norm now, isn’t it? Should you charge them rent?

BECKY: Perhaps if it’s over an extended period of time, but equally, you could suggest incentives to save. “We could charge you rent, but if you save that money instead, then fine”. But it would have to be on the strict condition that that money was saved and didn’t get blown. That would be a very tricky thing to monitor.

PHILIPPA: It would. How do you police that? I mean, that’s difficult. I don’t know. What do you think?

ROTIMI: Again, coming from my background, the expectation was always that I’d pay rent, and it didn’t need to be a huge amount, but it’d be enough to help out with the bills and with food and stuff. But I think if parents are in a position where they can let their children stay for free, then they should.

PHILIPPA: It’s better, isn’t it? Because rents are record high. As we talked about this on the podcast and on other occasions, they’re ridiculously high. Huge proportion of your take-home pay. In many ways, you might as well have them stashing the cash. Because if you’re thinking as a savvy parent, the more they save now, the less you’re likely to have to help out later. Yeah?

BECKY: Yeah. But of course, it doesn’t always... I mean, if you want a job in London and your parents don’t live in London, for example, then that’s not feasible. So there has to be something -

PHILIPPA: But remote working is changing that in a big way, isn’t it?

BECKY: That’s true, yeah. But I think there’s always going to be some compromise along the way. Actually, living with your parents for a long time when you’re an adult, is difficult in many ways, isn’t it? I think if you can keep it as a short-term arrangement, that suits everybody with a fixed financial goal in mind. But yeah, the rent saving is huge. If you can do it, then why not?

PHILIPPA: Obviously, you talked about buying a property as a young person. This is a lot of people’s aspiration. I think the average first-time buyer, what is it? Is it 35 now? Yeah, it’s remarkably older than it used to be.

MARK: The thing that we learned in talking to the people who’re 25 to 30, they all hate renting because of the people they perceive as being like the landlord. And to move out, almost everyone has to club together, even if you get help from your parents. So they do it with siblings, they do it with friends. It’s not a thing you did on your own anymore, you have to plan. And the final thing is that children of single parents don’t want their single parent to mess up their own finances by helping them. And that’s a really powerful dynamic in their thinking.

PHILIPPA: It’s really interesting you say that. That’s been my personal experience. I’m a single parent. And yeah, I think when kids see you bring them up alone, I think there’s something in that, that sense of, they understand the work you put in, they understand where the money comes from. I think they do perhaps have more of a sense of responsibility. It’s fascinating your data supports it.

Implications of dipping into your savings

PHILIPPA: But if you do decide you’re going to help out with cash for a flat deposit, some thoughts around how to do that. Legal advice, tax advice, what’s the best way to... lump sum from your pension? I mean, I don’t know, pros and cons?

BECKY: Well, I mean, on the pension point, if you’re accessing your own lump sum to give to your children, obviously, you have to make sure that that isn’t going to affect your retirement. And that you’ve really done your sums and you’ve worked out what your costs may be that you don’t know about. You don’t know if you’ve got care costs. You don’t know what’s around the corner for yourself. That’s a really big decision not to be taken lightly and not to be taken too soon either, because you can access that money at 55, rising to 57 in 2028. It doesn’t mean that you should. Unfortunately, very often that need for a house deposit from the children comes around the same time that that lump sum is accessible to the parents. So it can be quite a temptation.

MARK: The whole thing is so complicated. But coming back to the point you made, the single biggest variable for parents and grandparents is their own financial situation. Most people who aren’t in the position where they can give large amounts of money or buy their kids a flat, they’re worried about their own financial circumstances. They don’t know whether they’re going to live to be 70, 80, 90, or 100 [years old]. There are lots of other ways to help which don’t involve giving money or giving money in a way you can get it back because you think, “if I live to be 95, I’m not giving you the money because I’m going to need it”. That’s a really important factor for people.

PHILIPPA: Do you see that? That’s that moment when it looks like there’s cash that’s available and that’s what it gets spent on, or at least some of it gets spent on that?

MARK: Because of the issue of, “I don’t know how long I’m going to live and how much money I need”. So gifting is one option. There are lots of other options which we see parents tend to prefer. So there’s a mortgage called ‘joint borrower sole proprietor‘, where effectively a parent or parents go on the mortgage with the child. The child’s expected to pay the mortgage, but because of the parents there, it may increase the amount they can borrow or reduce the interest rate. Parents can provide security either by way of cash or using the equity in their own home. There are lots of ways that parents can help without actually giving money. And those people tend to be more inclined to do that because it keeps their options open. Because generally, once you give money to a child, even if you think, “look, I may want that back in 20 years time”, it’s gone.

PHILIPPA: You’re nodding, Rotimi.

ROTIMI: Yeah. And the only thing that I’d add is for parents who maybe have smaller amounts to give, smaller amounts given over time could also help, too. The Lifetime ISA (LISA) has a £4,000 per tax year allowance, and any amount put into that would get the ^{_corporation_tax} government bonus. So you can give as you go. It doesn’t always have to be a lump sum.

PHILIPPA: What about big cash gifts that, to be brutal, aren’t strictly necessary? We all love weddings. Weddings are lovely. They’re so expensive. This is a time, isn’t it, when a lot of parents feel that they really do need, or want and need to help their kids out with this crucially important day. If parents either foot the bill or make a big contribution, do we think that gives them a say in how lavish the wedding should be?

BECKY: I’d say so.

PHILIPPA: Or do you just have to pay up and be quiet?

BECKY: Yeah. I mean, it’s nice to have a day that everyone can remember for sure. But if the purse strings are tight, then can you have that special day without spending a huge wadge unnecessarily? Then yes, I think you can.

Ongoing bankrolling and protecting your financial security

PHILIPPA: We’ve alluded to open-ended bankrolling a little bit earlier on, but that strikes me as something that it’d be worth talking about, because if we can’t hand over cash, we can hand over time. So, that can be things like childcare, which there’s a cost attached to that, isn’t there? It might be time that you’d otherwise be working and earning. But if you’re helping out with things like childcare costs or car payments, how do you approach that? Because the question - you’ve raised this, we’ve all raised this, your own financial resilience going forward is a completely intangible number, isn’t it? And as you say, it could be when you’re in your 50s, when you get access to pension lump sums, but you don’t know how long you’re going to live, you don’t know what costs you might have, even if you own your own home, around elder care costs or care home costs, all those things. So what’s the best way to do this? And is that a point, actually, when you need to have proper conversations with your grown-up children about how long this support is going to go on for and how much it’s going to be?

BECKY: I think the cost of self-sacrifice does need to be quantified. Again, thinking of my own circumstances, my in-laws have helped us out hugely over the years and saved us thousands of pounds in childcare costs. We’ve also had to pay for nurseries and childminders and what have you, as well. But they’ve done maybe two days a week -

PHILIPPA: Have they?

BECKY: - for 10 years.

PHILIPPA: Wow!

BECKY: And now they pick the boys up from school, and so we don’t have the after-school care costs for the one in primary school anymore. So if you add all that up, that’s worth way more than a deposit. It happened at a time in their life when they were wanting to go part-time anyway. But I think it’s a big decision for grandparents to give up their own incomes to support the younger generation. You just have to make sure that you’re still earning enough to pay into a pension, so that you can eventually give up work. Again, it comes back to that point of not giving up too much for yourself.

PHILIPPA: Yeah.

ROTIMI: When it comes to the topic of finance and of helping yourself vs. helping others, I like to adopt the ‘oxygen mask principle’.

PHILIPPA: Help yourself first?

ROTIMI: Yeah. On planes, they’ll say to mums that you should fit your own oxygen mask before your baby’s because the recognition there’s that if you can’t help yourself, then you won’t be in a position to help them. It’s good to give, and it’s good to want to give, but you need to make sure that you look after yourself first.

PHILIPPA: So it’s being aware of societal pressure, isn’t it? And your own, obviously, natural longing to make sure your kids are OK. But yeah, as you say, perhaps the most useful thing you can do is make sure you’re going to be OK. Because it does strike me that if you run into financial difficulties in later life -

ROTIMI: You can’t help anyone.

PHILIPPA: You can’t help anyone. And your adult children are unlikely to be able to help you out, because they’ll be just in that place where they’ve got all the expenses of kids and maybe university or helping their own kids out with flat deposits. So there’s no buffer for older people, is there at that point? No cash buffer. No one to look after them.

Treating children equally or equitably?

MARK: Genuinely there isn’t, but it’s interesting when you start - so, the joint mortgage sole proprietor, that you talk about, sometimes we see kids helping their parents in that way.

PHILIPPA: Do you?

MARK: So you do, but it’s a much lower number than the other way around. The other thing you haven’t mentioned, which is really difficult for people, is do you treat all your kids equally...

PHILIPPA: Yes!

MARK: ...or according to their needs and their competencies?

PHILIPPA: It’s a very good point.

MARK: Some kids are good with money, some kids are lousy with money.

PHILIPPA: Some people are earning more.

MARK: Some people earn more, some people earn less. If you’re grandparents and you’ve got two or three kids, and they have different numbers of kids themselves, do you treat the grandkids equally or do you treat each of your children equally? And so some grandkids get more. Parents and grandparents really torture themselves with that question because it’s really hard to answer.

PHILIPPA: What’s the rational response?

ROTIMI: To treat them equitably.

PHILIPPA: Yes.

BECKY: Yes.

PHILIPPA: Good word. Yeah, according to need?

ROTIMI: Yes.

PHILIPPA: Yeah.

BECKY: Well, if there’s a certain pot and it’s £90,000 and you’ve got three kids, then they get £30,000 each.

PHILIPPA: Regardless of how much they’re earning?

BECKY: I think so, because if you’re a higher earner and you’ve made that choice and you’ve worked very hard.

PHILIPPA: Oh, but Becky, some really worthwhile jobs pay really badly. I think Rotimi, his definition of equity is different there, isn’t it? I think you’re talking about actual need rather than just dividing things along equal proportions. That’s what you meant, was it?

ROTIMI: Yeah, I think if different children are being - like one child’s being responsible and the other isn’t being responsible, then to continue throwing money at the irresponsible child is unfair. But if one child has a...

PHILIPPA: It’s hard to let them sink.

ROTIMI: But if one child has a job as an investment banker and the other is a nurse, then they’re going to have different financial needs. That latter job is really important, but we don’t have a financial system that’s worked out a way to compensate [for] it adequately. That’s where behaving in an equitable fashion makes more sense.

Making sure you’re on the same page

PHILIPPA: But what you’re saying about siblings or just generally feeling that they haven’t been treated fairly, that they’ve done everything they should do and there’s no money and it damages sibling relationships or damages parent-child relationships. I think that’s a really interesting point because the whole sense of parents continuing to pay, and obviously this assisting with childcare and stuff, this can go on while your kids are into their 40s, this rolls on and on and on. I’m thinking that what we should be suggesting to people is they do sit down and have proper conversations and maybe document them about this, about when this stops and how they’re making their decisions because otherwise, there’s a real opportunity, isn’t there, for fracturing families around money?

MARK: People find it so hard to talk about. Because we do joint proprietor sole owner mortgages, we had one relatively recently, it was a son and his father. So the father was going on the mortgage to help his son get the mortgage. Really unusually, the first mortgage payment was missed. So we rang up the son. So he said, “No, no, no, no, no - my father’s going to pay it”. So we rang his father up and said, “Look, your son says you’re going to pay this mortgage”. So he goes, “No, I’m not. It’s absolutely clear the son’s going to pay it”.

PHILIPPA: So what happened at that point? Did anyone pay it?

MARK: The son ended up paying. But it just shows you that even something as fundamental as who’s going to pay the mortgage in the first month, people find hard to talk about.

PHILIPPA: I mean, this is the thing we talk about on the podcast all the time, the immense value there is in having open conversations.

ROTIMI: And also writing stuff down.

PHILIPPA: Yes.

ROTIMI: A one-pager...

PHILIPPA: And sharing that document.

ROTIMI: ...an email just so that everyone’s on the same page about what’s happening.

PHILIPPA: Yeah.

BECKY: There are huge generational difficulties here, though. There are. I’ll happily talk about money all day long. But the further up the generations in the family you go -

PHILIPPA: That’s my experience too.

BECKY: - the harder that goes.

A living versus willed inheritance

PHILIPPA: I’ve got another one, another key question. We’re going to have to wrap this up soon, but I do want to talk about this. Should you give money, if you’re going to pass it on, should you give it while you’re alive? Or what about just leaving it in your will in your traditional way? I mean, that’s what people used to do. Obviously, there’s tax implications here, aren’t there?

BECKY: I think the tax implications are well worth thinking about there.

PHILIPPA: Run us through it, Becky, how does that work?

BECKY: Well, Inheritance Tax is the biggie. If you leave it when you die, then your estate is potentially liable for Inheritance Tax, depending on what you’re leaving and what assets and how much. That’s something that would come from your estate, so it’d affect your beneficiaries. One way that you can try and help them more generously is to help avoid that tax.

PHILIPPA: Yes.

BECKY: So giving earlier on. There’s a gifting regime set up. So gifts prior to seven years before your death are tax-favourable. Then there’s a taper system for gifts up until that point. And then there are some gifts that you can make that are just tax-free as well.

PHILIPPA: Yes, repeated small gifts. Is it...

ROTIMI: £250.

PHILIPPA: ...£250? Thank you, Rotimi. You can just keep on giving those, can’t you? As often as you like?

ROTIMI: I think it’s ongoing.

BECKY: These are all things worth thinking about. Unfortunately, there’s still probably a predisposition to leave it later, but giving earlier can certainly make a lot of financial sense for everyone.

PHILIPPA: But you do need to do the thing we talked about, of ring-fencing enough for your own unexpected future, whatever that might be, don’t you?

BECKY: And expected future, yeah.

PHILIPPA: It’s very hard to actually put a number on that, isn’t it? About how much... There’s lots of bands about how much we’re going to need when we’re older to live, but there’s all sorts of unexpected stuff, and particularly care costs.

BECKY: Most people don’t retire with enough in their pension to support a moderate living standard. The Pensions and Lifetime Savings Association amount. The average retirement pot is just over ^{_high_income_child_benefit} when people reach their mid-60s, which is unfortunately not going to go that far on top of the State Pension. Most people are already retiring, assuming the pension is their only pot, with less than they need. So that’s important to bear in mind. It might feel like a lot when you first access it, but it’s got to last a long time.

PHILIPPA: Given we know that, are we effectively saying you really, really should be thinking about yourself first, as Rotimi says, before you consider at all assisting your kids or grandchildren financially?

BECKY: I think so, but I think there are obvious solutions where you can do a little bit of...

MARK: You don’t have to give money. The one other thing which I’ve seen, there’s a cadre of people that just think that they’ve got to keep it whole, because otherwise water is draining out the bucket and it’s going to be empty soon. There are different segments of people. There are the people who spend too much, but equally, there are people who are just too cautious.

ROTIMI: Yeah, and if you give whilst you’re still alive, then you can actually see the benefits of the money that you’re giving and experience it with your children and grandchildren, which I think is a much more beautiful outcome than [if] you die and then you don’t even know what happens.

PHILIPPA: Yeah, absolutely. I think we do need to wrap this up now, but it strikes me the big lesson here is about managing expectations. Talk to your children about money. We say it again and again on the podcast, don’t we? Thank you all very much indeed.

BECKY: Thank you.

ROTIMI: Thank you.

PHILIPPA: Helping our kids to flourish. I mean, it is what it’s all about for parents, isn’t it? But every family, with or without kids, needs good conversations about money. We do hope that today’s discussion might help you get one of those going in your family. Join us next month. We’ll be discussing how to balance where you put your hard-earned cash. If you enjoyed this episode, please do give us a rate and review. We’d love to hear what you think. Don’t forget, you can watch us on YouTube. And if you’re a PensionBee customer, you can listen to all the episodes in the PensionBee app. Just before we go, a last reminder, anything we’ve discussed in this podcast shouldn’t be regarded as financial or legal advice. When investing, your capital is at risk. Thanks for being with us.

Risk warning

Period	Market Event	FTSE World TR GBP (%)	4Plus Plan (%)
4Plus Plan’s inception – 6 Sept 2013	QE Tapering, China Interbank Crisis and its aftermath	-5.44	-2.41
3 Oct 2014 – 15 May 2015	Oil price drop, Eurozone deflation fears & Greek election outcome	-5.87	-1.77
7 Jan 2016 – 14 Mar 2016	China’s currency policy turmoil, collapse in oil prices and weak US activity	-7.26	-1.54
15 June 2016 – 30 June 2016	BREXIT referendum	-2.05	-1.07

Period	Market Event	FTSE World TR GBP (%)	4Plus Plan (%)
4Plus Plan’s inception – 6 Sept 2013	QE Tapering, China Interbank Crisis and its aftermath	-5.44	-2.41
3 Oct 2014 – 15 May 2015	Oil price drop, Eurozone deflation fears & Greek election outcome	-5.87	-1.77
7 Jan 2016 – 14 Mar 2016	China’s currency policy turmoil, collapse in oil prices and weak US activity	-7.26	-1.54
15 June 2016 – 30 June 2016	BREXIT referendum	-2.05	-1.07

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1. Aim to be debt-free

2. Find any missing pension pots

3. Consolidate your old pensions

4. Review your pension investments

5. Assess your financial position

6. Use a Pension Calculator

7. Top-up your pension savings

8. Explore your retirement income options

9. Write a will and nominate beneficiaries

10. Book a free Pension Wise appointment

Summary

What happened to stock markets?

Changes to pensions under the new government

1. Initial pension landscape review

2. Decision on WASPI compensation

3. Extension of Auto-Enrolment

4. Help savers understand retirement income options

5. Improve self-employed pension saving

6. Pot for life reforms

7. Reallocate funds into the UK economy

8. Reviewing the minimum pension age

9. Unveil the long-awaited pensions dashboard

Hassle-Free: ^{_starting_rates_for_savings_income} a year

Dividend Tax Rates ^{_current_tax_year_yyyy_yy}