Stock markets work in the same way as farmers’ markets; but instead of buying and selling fruits and vegetables, people buy and sell stocks (portions of companies). Like many goods, the value of company shares are determined by supply and demand. When an item’s in high demand, the price goes up. Conversely, less interest can result in falling prices.

When the value of company shares moves rapidly up or down, it’s a type of market volatility. This can be unsettling for young investors, who are just starting out and may not be used to seeing the value of their savings fluctuate. However, this can also be viewed as an opportunity. Young savers have the luxury of time to ride out multiple cycles of market volatility, and by staying invested for the long-term, can grow their pension savings confidently. Here’s what you need to know:

What are bull and bear markets?

These investment terms come from the way these animals strike their opponents - a bull uses its horns to thrust upward, while a bear uses its claws to swipe downward. So, a bull market’s when stock prices are going up and a bear market’s when stock prices are going down. Bull markets are typically characterised by optimism and economic growth, while bear markets are associated with pessimism and economic recession.

The market’s status as a bull or bear can only be determined with the passage of time as stock prices can fluctuate in the short-term. For example, stock prices may go up one day and down the next. However, a bull or bear market’s identified by a sustained upward or downward trend, such as a rise or fall of more than ^_basic_rate in stock market prices.

A brief history of bear markets

Bear markets can vary in length and seriousness, but they usually offer opportunities for investors to buy company shares at lower prices and benefit from the eventual recovery. Stock markets have historically trended upwards; even if there are short-term declines, the market has always recovered and gone on to reach new highs.

Older generations have lived through many cycles of market volatility, and they’ve come out ahead in the long-run. Take the Dow Jones Industrial Average in the US for example. As one of the oldest and most widely-followed stock market indices in the world, it’s weathered many bear markets in its history. Here’s a brief overview of how different generations have lived alongside market volatility, and the impact this has had on their savings.

‘The Silent Generation’ (1928-1945) and ‘Baby Boomers’ (1946-1964)

The Wall Street Crash of 1929 was one of the most famous bear markets in the past century. Triggered by bank failures and overproduction of goods, it began a four-year decline that erased nearly 9^{_personal_allowance_rate} of the Dow Jones Industrial Average’s value. The following recession, the Great Depression, lasted for over a decade and contributed to widespread poverty.

After World War II, the US economy shrank again. The combination of high inflation, reduced government spending, and returning veterans to the workforce, resulted in the Post-War Recession. Despite these bear markets, the Dow Jones Industrial Average’s value increased by 269% between 1928 and 1964.

‘Generation X’ (1965-1980) and ‘Millennials’ (1981-1996)

The Oil Crisis of 1973 was the result of political friction between the US and Middle East. The Organization of Petroleum Exporting Countries (OPEC) refused to sell oil to the US and its allies for supporting their opponent, Israel, during the Yom Kippur War. This caused oil prices to quadruple and led to a global recession.

Black Monday in 1987 was known as the most dramatic plunge in the Dow Jones Industrial Average’s history, with a record 22% fall in a single day. Overvaluation of company shares and mass panic selling were contributing factors that led to the crash. Undeterred by this, the Dow Jones Industrial Average’s value increased by 53^{_personal_allowance_rate} between 1965 and 1996.

‘Generation Z’ (1997-2012) and ‘Generation Alpha’ (2013-Present)

The Global Financial Crisis in 2008 was the worst economic downturn since the Great Depression and the most severe bear market since the Oil Crisis. A domino effect of a housing market collapse and mortgage crisis, which spilled over into the credit markets and global banking systems, led to a very painful global recession.

The COVID-19 Pandemic in 2020 caused widespread disruptions to the economy and society. The pandemic forced many countries to impose lockdowns and social distancing measures that severely affected many businesses. Even through unprecedented times, the Dow Jones Industrial Average’s value increased by 357% between 1997 and 2021.

Key takeaways

• Bear markets are normal and will come to an end.
• The average duration of a bear market’s around 10 months.
• Bull markets typically last longer than bear markets, and the gains made during them are often larger than the losses in a bear market.
• Regularly investing’s a good way to benefit from market volatility, as you’ll buy company shares at their lowest and highest prices over time without needing to worry too much about timing your investments.

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Power of market volatility on investments

Bear markets are unpredictable, yet inevitable, events that often have a significant impact on investors and the economy. They’re also part of the natural cycle of markets and create opportunities for long-term investors to buy company shares at lower prices. History shows that bear markets are usually followed by bull markets that more than compensate for previous losses. And for young savers in particular, these market downturns can help accelerate long-term pension savings.

Risk warning

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

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

It’s been a busy time in the UK this May, with: the King’s Coronation, the Premier League’s end-of-season games, and another interest rate increase from the Bank of England. The Bank Rate was raised to 4.5%, up from April’s 4.^{_corporation_tax}, as a response to the surprise rise in inflation that was seen in the 12 months preceding. The good news is that inflation was at 8.7% in May, a drop from April’s figure of 10.1%.

Keep reading to find out how markets have performed this month and how the rise in Artificial Intelligence may impact you as an investor.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index fell by almost 4% in May, bringing the year-to-date performance close to -1%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index fell by over 3% in May, bringing the year-to-date performance close to +11%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index was unchanged in May, bringing the year-to-date performance close to +9%.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index fell by over 8% in May, bringing the year-to-date performance close to -8%.

Source: BBC Market Data

An investor’s guide to Artificial Intelligence

The Industrial Revolution had a far-reaching impact on society, as new inventions both demolished old jobs and built new industries. This era was transformative to the UK’s economic status, and today we’re seeing a second industrial revolution emerge due to the advancement of Artificial Intelligence (AI). From steam engines, to search engines - we’re now more reliant than ever on modern technology.

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 many ‘Big Tech’ companies (such as Microsoft and Nvidia) that are exploring the capabilities of AI. Here’s our breakdown of how AI’s changing the global economy and what that could mean for your pension balance.

Rise in redundancies

The World Economic Forum recently published The Future of Jobs Report 2023, predicting that over the next five years 14 million jobs will be replaced by new technologies. In May, there’s been a wave of redundancies and future job losses making headlines. Telecoms giant Vodafone announced its plans to axe 11,000 jobs over three years. Simultaneously, competitor BT reported it’ll reduce its workforce by 55,000 across the next decade - with up to ^_basic_rate of roles being replaced by AI.

As AI becomes more prevalent and powerful in the business world, the government’s role is to regulate this new industry. Last month the Prime Minister stated that “obviously there are benefits from artificial intelligence for growing our economy… with guardrails in place“ at the G7 summit in Japan. Consequently, he met the CEOs of Anthropic, Google’s DeepMind, and OpenAI in May, to develop safe and ethical regulation of AI technologies in the UK.

Boosting companies’ revenue

Founded back in 1971, the Nasdaq’s the world’s first electronic stock exchange and hosts the listings of many US technology companies. In April, ‘Big Tech’ company Microsoft published a 9% increase in profits from January to March, following an increased move towards AI usage for business functions. This trend was also reflected in other Nasdaq-listed companies, such as Apple and Tesla, which both reported strong earnings growth in Q1 2023.

One of the rising stars from this AI ‘gold rush’ was software company Nvidia. As an industry-leading supplier of AI products and technology, Nvidia made headlines in May as it briefly hit a market capitalisation of $1 trillion. However, even as the dust has settled, the company’s strong performance is undeniable. Nvidia’s share price rose by almost 31% in May alone, bringing the year-to-date performance close to +164%.

The increased adoption of AI solutions by businesses and consumers has boosted the demand for cloud computing, digital advertising and e-commerce services - which are the core offerings of these tech giants. As of writing, the Nasdaq-100 Index is performing at a 12-month high.

Summary

These examples show that AI’s not only a buzzword, but a powerful tool that’s shaping the global economy - from rising redundancies, to boosting company’s revenue. As an investor there’s plenty to be excited about with these new technological advancements. Many companies safely using AI software, alongside human intelligence, are widely predicted to deliver better long-term profits for investors - including pension savers.

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

Have a question? Get in touch!

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

Risk warning

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

According to the DWP, the official gender pension gap’s estimated to be 35% for private pensions. This means women have a retirement fund worth 35% less than men at age 55, when you can begin withdrawing private pensions. PensionBee’s customer base shows a similar story, with a 38% gap.

Women have around ^{_high_income_child_benefit} in private pension savings aged 55 compared with £150,000 for men, separate figures from PensionBee show.

Below we look at how women (or savers generally) can boost their pension savings to have more in retirement.

Max out your company’s scheme

If you’re employed by a company, check their pension policy. You could be turning down free money by not taking full advantage of their pension scheme.

Under UK Auto-Enrolment laws, employers have to contribute a minimum of 3% of your qualifying annual salary into a pension. But many employers will be more generous than this. Some may offer to match your contributions up to a certain level or even double your contributions. For example, they may offer to pay in 12% if you contribute 6%.

Of course, this’ll mean sacrificing more of your take-home pay to a pension. But once tax relief’s taken into account, the net cost to you’ll likely be lower than you realise. Use PensionBee’s pension tax relief calculator to work out the actual cost to you.

Those who are self-employed won’t get employer contributions but will still benefit from tax relief.

Maintain pension payments during maternity leave

Having a baby’s usually the tipping point at which the gender pension gap begins to widen as women are more likely than men to take time out of paid work to care for children. For women in their 30s, the gender pension gap’s 1^{_personal_allowance_rate} but significantly widens to 33% by the time they hit their early 40s.

Make sure you don’t opt out of your employer’s pension scheme while on parental leave, as employers should continue paying the same contributions as before you went on leave.

The contributions from yourself may be lower as the amount you pay into your pension will be based on your parental leave pay – which may be less than your typical working salary.

It’s up to you whether you want to pay more to keep your contributions at your typical rate, but at least your employer contributions will remain the same. If you’re going back to work at the same pay, it may only be a few months where your personal contributions are lower.

We explain more here about what happens to your pension during maternity leave.

Consider going back to work when parental leave ends

The high cost of childcare’s the reason why many parents choose to take a career break or leave the workforce altogether after having a baby. Currently, parents can access 15 hours per week of free child care for children between nine months and two-years-old. This increases to 30 hours for three to four year-olds. This should make it more financially worthwhile for parents to return to work before a child starts school.

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Ask for a pay rise

An obvious way to get more into your pension’s to earn more money. Your employer will have to pay more into your pension, and your own contributions will also increase.

Women are less likely to ask for a pay rise than their male counterparts. Around 6^{_personal_allowance_rate} of women have never asked for a pay rise compared to ^{_scot_top_rate} of men, according to YouGov data. Jobs websites such as Indeed and Total Jobs have various guides and scripts on how to ask for a pay rise.

Check out our Pension Confident Podcast ‘How to earn more money’ to learn about pay gaps in the workplace and how to negotiate for higher pay.

Claim National Insurance (NI) credits

To get the State Pension, you’ll need to have amassed enough National Insurance contributions. If you’re not earning enough to pay NI, you can still claim NI credits for looking after a child under the age of 12 or for other care responsibilities.

To ensure you’re getting NI credits for childcare, the stay-at-home parent should claim Child Benefit. This may have to be paid back if your partner’s income’s above ^{_annual_allowance} (2024/25). If you don’t want to claim Child Benefit because your household income’s too high, you can specify on the government form that you don’t want to be paid Child Benefit but want to protect your State Pension.

Take more investment risk

Various studies have shown that women tend to take less investment risks than their male counterparts. Despite their hesitancy, when women choose to invest, they often make better investment decisions than their male counterparts, with men making 5^{_personal_allowance_rate} more mistakes than women when it comes to investing. It seems that confidence, not competency, is preventing women from investing in their future.

Younger savers should be able to take greater investment risk, as there’s more time for money to recover in the event of a stock market downturn.

Consider combining old pots

You may have worked for several employers and accumulated a number of pensions. It may be a good idea to consider bringing them into one place, so you can clearly see your total savings and what that could give you in retirement.

A company such as PensionBee can help you combine your old pension pots.

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

Risk warning

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

Today we’ve published a new report: ‘The Carer’s Pension Gap‘, which highlights the impact of time taken out of work to look after loved ones on the nation’s retirement outlook.

There’s currently an estimated 4.9 million unpaid carers in England and Wales, according to the Office for National Statistics (ONS). Over a working life, our research suggests that the chance any one of us will have to take time out of work to provide unpaid care at some point, is two in three. That’s higher than might be expected.

We tend to think that the need to care affects women more than men. However our recent analysis of previously unpublished ONS data shows that while more unpaid carers are women - the difference between the proportion of women and men who provide care isn’t huge. In England, 10.3% of females are unpaid carers, compared with 7.6% of males. In Wales 12% of females compared with 9% of males provide unpaid care.

The need to provide unpaid care typically arises when someone has children, or when a parent, partner or grandparent falls ill. The birth of children and age-related incapacity are generally more predictable than the misfortune of illness. But these key care moments can be difficult to plan - and the consequences to household finances can be shocking.

Unpaid carers face managing on lower incomes, which makes them more financially vulnerable; they also face more hours of work overall, if you include some hours of paid work on top of care work, as well as physical and emotional strain.

When the need to care for someone close arises, it can be sudden and dramatic, transforming your life and work overnight. You can go from being employed full-time and paying into a pension to unemployed and on benefits, caring night and day for someone you love, in a matter of hours.

There’s a safety net to support people when this happens, but one of the things that unpaid carers might have foregone, which won’t be replaced by the benefits system, is adequate private pension provision.

There’s the possibility of further reform of the State Pension to help solve this issue. In her government-commissioned review of the State Pension age, Baroness Neville-Rolfe refers to policy areas where further work’s needed to support State Pension provision: “One major example is carers where we had evidence both of the contribution this dedicated group make in supporting the ill, disabled and older people, and the difficulties they face. I believe further work is required in this area.”

It’s worth noting that although no new increase in the State Pension was announced following the review, over time, the State Pension age‘s set to increase and, as it does, the probability that someone will need to take more time out of work to care for someone increases alongside the number of years in work.

In light of the research findings and analysis in the Carer’s Pension Gap report, we’re calling for the government to consider the problem of needing to take time out of work to perform care and how it affects the retirement outlook for workers, as it reviews work and pension policies.

Have you or someone you know been affected financially by the need to provide unpaid care? Let us know: press@pensionbee.com.

Risk warning

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

This article was last updated on 22/11/2024

Thinking about investing but not sure where to start? While there’s no one-size-fits-all approach to investing, there are some steps you can take to ensure you’re ready to get started. Creating your own personal finance roadmap will help you identify what you want to achieve through your investments, and the options you have for getting there.

1. Take into account your personal circumstances

Firstly, your age. The younger you are, the longer your investments will have to grow and generate a return for you. In your 20s and 30s, you may also have more disposable income and less responsibilities such as mortgage payments and children. If you’re older and are approaching retirement age, while you might be earning more than you did in your early 20s, you have less time to benefit from investment growth. And what about all those years in the middle? You might be taking a break from work to have children or care for family members which will see your income fall or stop altogether. In this case it makes sense to adjust the amount of money you’re spending, saving and investing in line with your new income.

Knowing how much you should invest’s entirely your choice, and depends on your lifestyle choices among many other things. We have helpful guides for retirement planning at different life stages, from as early as your 20s, all the way up to your 50s.

2. Know what your goals are

Think about what you want the money for - are you planning to start a family, saving for your retirement years, or do you simply want to make your money work harder? Having a set goal will help you keep on track and eventually reach it. Knowing what your goals are will help you choose the right product too. For example, both pensions and ISAs have tax benefits, but each type of pension, and each type of ISA has different rules when it comes to how much you can contribute, when you can start withdrawing and so on.

You might be saving for your children’s future, in which case there are specific Junior Pensions and Junior ISAs to consider. Even if you’re on parental leave and only contribute small amounts, if you start doing this nice and early you can benefit from up to £720 in government top ups each year under the current tax relief rules. And if you aren’t working at all while raising your family, there are still ways you can build your wealth as a stay-at-home parent.

3. Put together a realistic time scale

When it comes to your goals, think about how quickly you want to achieve them. If you’ve got 40 years before you’d like to retire and want to invest until then, you’ve got much longer to see your money grow. If you want to buy a property in the next five years, your money doesn’t have as long to grow and you mightn’t want to run the risk of it losing value if the stock market fluctuates in the short-term.

You might be better off leaving the money you have in a more accessible savings account if you think you’ll need to access it within the next few years whether that’s for a wedding, travelling or for growing your family. The less time you have, the more you need to consider the level of risk you want to take when it comes to investing.

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4. Consider your level of risk

With any type of investment, there’s going to be a level of risk. Generally, the higher the risk, the greater the potential return. However, this doesn’t mean you should only make higher risk investments, especially if you don’t have other savings pots, like an emergency fund, to fall back on and time to recoup any potential losses along the way. MoneyHelper has a fantastic guide on understanding the risk when it comes to investing, it’s well worth a read before you get started. Once you decide on your preferred level of risk, it’s essential that you ensure the investment platform you choose is regulated by the Financial Conduct Authority (FCA).

5. Do your research

Learn as much as you can - whether you pay an Independent Financial Advisor for advice or seek guidance from websites, podcasts and other free platforms. Websites like MoneyHelper, a government-backed, impartial service, have brilliant guides that explain investing and different types of investments. There are some great websites and resources that are aimed at specifically helping women when it comes to personal finances and investing, like Vestpod and rainchq. And of course, you can always talk to friends and family. While they mightn’t be qualified to give you financial advice, they can support you and share any experiences they’ve had which might be helpful.

If you feel as though you need specific financial advice, and are able to pay for it, make sure that it’s regulated. The FCA has a free register of authorised individuals, firms and bodies.

For more information, and to build your confidence when it comes to investing, take a look at the Good Guide to Financial Wellbeing from Good With Money which is full of tips and resources for women.

Risk warning

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

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

The UK’s central bank, the Bank of England, raised the Bank Rate from 4.5% to 5% in June. But how do interest rates impact mortgage deals? A mortgage is a loan from a bank to buy a property. The cost of borrowing money increases when interest rates rise, which can lead to more expensive mortgages. The most common type of mortgage in the UK is a capital repayment mortgage, where your monthly payments go towards the loan amount and interest on that loan.

After years of record low interest rates, mortgage rates are now escalating, which is being felt by borrowers (and potential borrowers) across the country. Interest rates on variable mortgages are usually linked to benchmarks, such as the Bank of England’s Bank Rate. As interest rates rise, variable mortgage repayments are increasing. Those coming to the end of a fixed-term mortgage are also impacted and must decide whether to fix and lock in the new higher interest rates.

Keep reading to find out how markets have performed this month and how the rise in interest rates is influencing mortgage costs.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index fell by almost 2% in June, bringing the year-to-date performance close to -2%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by over 4% in June, bringing the year-to-date performance close to +16%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by over 5% in June, bringing the year-to-date performance close to +^_ni_rate.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index rose by almost 4% in June, bringing the year-to-date performance close to -4%.

Source: BBC Market Data

How UK mortgages are hit by interest rate rises

The UK mortgage market’s a complex and ever-changing landscape. Between 2012 and 2021, the Bank Rate never exceeded 1% and inflation was always below 5%. In fact, many years were even lower than the Bank of England’s 2% inflation target. During this period mortgage borrowers would’ve been able to get low-cost mortgage deals from banks and lenders.

Since 2022, we’ve seen this change. Oil shortages and supply disruption from the war in Ukraine have raised the price of goods. Under the pressure of soaring inflation, the Bank of England has raised interest rates five times since December 2021 - which is having a knock-on effect on mortgage rates. Here’s a timeline of the UK’s mortgage crisis:

Falling levels of home ownership

The cost of home ownership has increased over the past 20 years, due to rising house prices and stricter mortgage approval. In 2002, a median house in England cost equivalent to five times an average worker’s annual earnings. By 2019 it was closer to eight times - as house prices grew faster than wages.

Even the 2007-2008 financial crisis didn’t improve the home ownership landscape. While house prices did fall significantly during this period, lenders tightened their approval criteria making it harder for potential homeowners. One change was prospective buyers needed bigger deposits. Unsurprisingly, the rate of home ownership in England has dropped from 71% in 2003 to 65% in 2019.

Government incentives to buy property

Our current government aims to ‘turn Generation Rent into Generation Buy‘ through various home ownership initiatives. For example, to help with the deposit barrier for first-time buyers there’s Lifetime ISAs (where the government adds up to ^{_basic_rate_personal_savings_allowance} for every £4,000 saved each tax year) for savers under 40.

Stamp duty’s a tax based on the value of a property for homeowners in England and Northern Ireland. When the COVID-19 pandemic hit, the government introduced a stamp duty holiday in July 2020 to help restart a slowing property market. For context, the average two-year fixed-rate mortgage was 1.41% in June 2020. The holiday exempted buyers from paying stamp duty on the first ^{_higher_rate_personal_savings_allowance},000 of a property, which led to a boom in house sales and prices.

Aftermath from the Mini-Budget chaos

On 23 September 2022, the government delivered a ‘Mini-Budget’ statement. This started a series of unfortunate events: a drop in the value of Sterling (GBP), the Bank of England started sharply raising interest rates, this financial instability put many defined benefit pensions in jeopardy, and of course this created uncertainty for the mortgage market.

Mortgage lenders increased rates quickly and some even stopped lending temporarily. For people with mortgages, whether they’re first-time buyers or buy-to-let landlords, having a fixed-term mortgage end during this period would’ve been very unexpectedly expensive. And the mortgage market has yet to improve.

Today’s mortgage landscape

Mortgage rates in the UK have been rising steadily in recent months, and there’s no sign of this trend slowing down. As of June 2023, a typical five-year fixed mortgage deal now has an interest rate of more than 6%. This is likely to affect more than 400,000 people whose fixed-rate mortgages expire between July and September.

Many households are currently being financially squeezed by the rising cost of living, on top of elevated mortgage repayments. The Prime Minister has promised to halve inflation by the end of this year and urged homeowners to ‘hold their nerve‘. Once inflation begins cooling, it’s expected for mortgage rates to follow.

Are you struggling to make sense of your options?

Figuring out your financial situation isn’t always straightforward. If you’re struggling to keep up with your mortgage repayments, support is out there:

• Contact your lender first and start a conversation. They may recommend changing the length of your mortgage or switching to interest-only payments.
• MoneyHelper has a list of resources and tools available for those struggling with their mortgage repayments, or who want guidance on how to budget in the new interest rate environment.
• Get free advice from debt experts. For example, StepChange’s a debt charity who offer solutions and services to suit every situation.

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

Have a question? Get in touch!

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

Risk warning

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

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 19 here, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Thanks for joining us on The Pension Confident Podcast. My name’s Philippa Lamb, and this month we’re asking a very big question. Can you afford to have kids?

This year The Times Newspaper worked out how much it costs to raise a child to the age of 18. The answer? Over ^{_threshold_income}. Now that’s including housing and childcare, but still - ouch! Then again, it’s impossible to put a price on all the joy that kids can bring you. So we’re not even gonna try. Instead, we’re going to talk about how much you’re likely to spend on them at every stage as they morph from bump, to bundle of joy, to self-sustaining adults. And how to make a plan to keep your finances and your work on track as your family expands. Who better to help us with all that than Mumsnet CEO, Justine Roberts CBE. Justine, we’re delighted to have you. Thanks for coming in.

JUSTINE: Well, I’m very happy to be here.

PHILIPPA: Financial Journalist and Senior Digital Editor at Money Week; Kalpana Fitzpatrick joins us too. Hi Kalpana.

KALPANA: Hello. Thanks for having me.

PHILIPPA: And new dad, Jonathan Lister Parsons’s our third guest today. He’s PensionBee’s CTO. Hello Jonathan. How new are you?

JONATHAN: Hi Philippa. Six months yesterday.

PHILIPPA: Okay. And it’s a daughter?

JONATHAN: It’s a daughter. A little girl called Lyra.

PHILIPPA: I’m gonna say how’s it going?

JONATHAN: It’s good. It’s certainly been an interesting journey, but six months in, it’s definitely looking up.

PHILIPPA: It’s a steep learning curve in the first six months.

JUSTINE: You’re still here.

JONATHAN: I’m still here. I’m awake!

PHILIPPA: I’ve got some personal experience here too. My son’s rather older. He’s just finishing university now . I raised him on my own from when he was seven. It’s the best thing I’ve ever done. Justine, how about you?

JUSTINE: Yes. Well, mine are nearly all gone from the nest. I’ve got four.

PHILIPPA: Kalpana, do you have kids or are you childfree?

KALPANA: I have two boys and yes, they’re keeping me busy and not just me personally. They’re certainly keeping my bank balance busy as well and I don’t think that’ll ever stop.

PHILIPPA: No, I think that’s probably about right.

As usual before we start, please remember anything discussed on this podcast should not be regarded as financial advice and when investing your capital is at risk.

PREPARING YOUR FINANCES FOR HAVING A BABY

PHILIPPA: Before we get on to how to make a financial plan for raising kids, I want to ask everyone around the table, since everyone does have kids, did you try and put a number on how much you thought you’d be spending before you had them?

JUSTINE: In my case, no. I didn’t think about it at all.

PHILIPPA: Me neither.

JUSTINE: We decided we wanted to have kids and within seven months I had two. So that was it. From there, basically, I don’t remember planning anything ever again.

PHILIPPA: Within seven months? So, they were premature?

JUSTINE: Yeah. So, I had premature twins. I got pregnant very quickly and from then life was just so chaotic. There wasn’t much planning after that.

PHILIPPA: But then you had two more?

JUSTINE: Then I had two more, yeah.

PHILIPPA: So you obviously got on top of it?

JUSTINE: I waited a few years. After twins, you think one’s just a piece of cake.

PHILIPPA: Yeah, I guess you do. Kalpana, did you think about the money?

KALPANA: To be honest, as a Financial Journalist, I would like to say yes. But I hadn’t thought about money because, for me it was more about, am I ready physically and mentally to have children? We decided to go ahead with it. But then, when my son was born, he wasn’t very well. So, the first year was quite a challenging year for us. And actually, that brought up all sorts of challenges afterwards like, am I gonna go back to work? My work patterns had changed.

PHILIPPA: Yeah. Well I was the same as you. I was a Financial Journalist too. It’s shameful to admit it, but I didn’t think about it all. I’m hoping that Jonathan did make at least some sort of attempt to work out the numbers?

JONATHAN: Yeah. We did think about it a bit, but like Kalpana said, I think the decision about whether or not to have children’s often not entirely about whether or not you can afford to. You know that they’re gonna be expensive. You know your life’s going to change in many, many ways. So it’s much more about other reasons, I think. We did make a plan, but it just wasn’t the number one priority.

PHILIPPA: Yeah. Well I think that’s probably about right, isn’t it? Let’s talk about the plan. Justine, what’s your thoughts? If, like rational people, you’re thinking about the money ahead of time, how early do you think you should start thinking about that?

JUSTINE: I suppose for many people it’s actually about their living situation as much as anything. Having said I didn’t think about it, it was important that we moved out of our one bedroom flat, into a house with a spare room. I think people do begin their nesting without necessarily thinking and planning every financial detail. What people say on Mumsnet is that people focus a lot on the early costs. Things like buying pushchairs and all the paraphernalia that goes with babies. But actually, the real strain comes from childcare. That gap between the end of parental leave and when government support kicks in, which is usually when your child’s about three years old. It’s that and the fact they often then have to juggle their work choices, and don’t go back to work full-time as they perhaps anticipated. That puts a real strain on the finances. So, I do think you need to start thinking about it, because it’s quite big sums we’re talking about, reasonably early. You need to look ahead to that period, not just focus on the baby stuff.

PHILIPPA: Yeah. We’re gonna dig into the numbers on that. Thinking about the start, Jonathan, the smart thing to do has to be to audit your finances and your expenses at that point? So you at least start from as good a place as you can.

JONATHAN: Yeah, I wouldn’t say that my wife and I were the most organised people in the world when it comes to doing that, but we did actually sit down and do a spreadsheet budget, and went through everything so we could look at just where we’re starting from.

PHILIPPA: So everything’s on there? Groceries, car payments, mortgage, rent?

JONATHAN: Everything. It’s extraordinary how much money we were spending on things that we didn’t expect to be big expenditures like holidays, how much you spend on gifting, how much money you spend on presents for your friends and family. It’s nice to find out we were reasonably generous.

PHILIPPA: So, looking ahead at the new expenses, you’re perfect for this. Your little girl’s six months old. In terms of kit, the sort that Justine was talking about, you didn’t have to buy everything new. Did you buy everything new?

JONATHAN: No, no. Within a few months of my wife; Bonnie, being pregnant, we were being offered lots of useful things that people had from when they’d had children. Clothes obviously, but also, we were offered a buggy, a playpen - little things that we didn’t even know existed. Did you know you can actually get a tube that you use to suck snot out of the baby’s nose?

PHILIPPA: Okay, I can honestly say I haven’t done that!

JONATHAN: That’s a new invention.

JUSTINE: Not that new. I was doing that 20 years ago!

JONATHAN: The shopping list gets very, very long.

PHILIPPA: Kalpana, thinking about taking time off once your kids have arrived. You said you, unexpectedly, because your little boy was ill, had to rethink how your return to work was gonna go. That’s obviously gonna have huge implications for family income. It’s the balancing act though, isn’t it? Obviously you don’t wanna max out your income, but there’s bonding with your new family. So it’s tricky.

KALPANA: It’s tricky. I always say prepare for the unexpected. If you’re thinking about starting a family, try and live on one income for a while and see how that feels. That’ll prepare you mentally if your work pattern has to change for whatever reason. Because your child’s unwell, or you just feel you actually don’t want to go back to work or don’t want to do the same job, or your employer isn’t giving you the flexibility that you need.

PHILIPPA: And of course, parental leave’s the moment in which that financial reality kicks in for most of us, isn’t it? That’s surprisingly painful. Can you just run us through the statutory numbers on that?

KALPANA: This is a bit of a shocker to some people. I speak to a lot of new parents, who think, ‘oh I’m going to take a nice year off, it’s maternity pay’. Statutory Maternity Pay’s 9^{_personal_allowance_rate} of your average weekly earnings for the first six weeks, and then for the next 33 weeks, it’s the lower of £172.48 or 9^{_personal_allowance_rate} of your average weekly earnings.

PHILIPPA: Six weeks is the time when you get 9^{_personal_allowance_rate} if you earn above £172.48 per week. Just six weeks?

KALPANA: Yeah. And that’s your average. So, if you’ve got income that goes up and down, you’re still looking at the average. And you pay tax and national insurance on that. And then for 33 weeks you’ll get the lower of £172.48 per week or the 9^{_personal_allowance_rate} of your average income. That’s also if you’re registered as self-employed. Your income could actually be lower. So it’s not a lot of money. I think my message here’s that you can plan, you need to plan, but you also need to plan with a buffer in mind because the unexpected does happen. It happens and it can really hit you.

JUSTINE: Let’s get back to reality - our forums are full of people who didn’t plan at all and they say, ‘we made it work, it was really difficult, but we made it work’. And if you wait until you’re 10^{_personal_allowance_rate} ready, you may never have a child.

PHILIPPA: I completely agree with you.

KALPANA: I agree with that. I absolutely agree. I don’t think you can 10^{_personal_allowance_rate} ever be ready financially, mentally or physically. I don’t think that’s the reality at all. But I think you can just have a little bit of a thought process and make yourself feel like you’ve got some sort of security that you can fall back on.

PHILIPPA: Just thinking about the Statutory Maternity Leave and Statutory Paternity Leave, the numbers look quite encouraging when you look at them on the page. It says 52 weeks of Statutory Maternity Leave and what is it? A couple of weeks of paternity leave? Up to 50 weeks of Shared Parental Leave. This all sounds great until you look at the numbers. Because that’s the point, isn’t it Jonathan? It’s a key reason why, mostly men, don’t take much time off with their kids - because the household can’t afford it.

JONATHAN: The thing that’s always stuck in my mind about Shared Parental Leave, which when I read it, I just couldn’t get it out of my head, is that if you’ve got a situation where we’ve already got an existing gender pay gap in the household, then the rational thing to do if somebody has to take time off is for the lower earner to take the time off. And then, that’s just a slippery slope. It exacerbates that near term pay gap. It means that you’re just playing into the gender stereotypes. Then, when you get to the end of a period of parental leave and, say it’s the woman, is trying to go back into work, they’re then suffering from that problem of, ‘well we’ve been out of work for such a long time or we’ve been working part-time for such a long time’, and then the man hasn’t had that problem. He might’ve had promotions and salary changes. I think you’ve got to fix it right at the beginning.

PHILIPPA: But employers have got a big role here, right? Because some of them top it up, some of them will pay you full pay to be off for longer, but lots of them don’t.

JUSTINE: A lot of them don’t tell you. They don’t tell you their policies. So, at Mumsnet we’re campaigning for all companies to publish their parental leave policies because it’s very clear that it’s not the question you wanna ask in an interview. And actually in our surveys, employers say they do discriminate against people who ask about parental leave policies.

PHILIPPA: Illegally.

JUSTINE: Yeah, illegally. So, it’s really important because lots of companies do offer great, enhanced parental leave policies. We were talking earlier, Jonathan, about both Mumsnet and PensionBee offering up to around six months for both men and women when they have kids.

JONATHAN: And that’s fully paid.

PHILIPPA: At full pay?

JUSTINE: At 9^{_personal_allowance_rate} for Mumsnet employees. But there are more people talking about their pet policy at work than there are about their parental leave policy. So that’s an easy change that I think the government could make to make this easier.

PHILIPPA: It’s important to remember, isn’t it? Not everyone goes through pregnancy. People adopt as well. What statutory rights do you have if you adopt?

KALPANA: There are different rules when it comes to adoption. So Statutory Adoption Leave’s 52 weeks. Only one person in a couple can take adoption leave. That’s important to remember. You get Statutory Adoption Pay for 39 weeks and it’s the same as Statutory Maternity Pay - 9^{_personal_allowance_rate} of your average weekly earnings for the first six weeks and the lower of the £172.48 or 9^{_personal_allowance_rate} of your average weekly earnings for the next 33 weeks.

PHILIPPA: So, it’s the same but for only one parent?

KALPANA: Yeah and again, we don’t talk about it. So, ask the question. It’s important to know.

THE COST OF CHILDCARE AND OTHER EXPENSES

PHILIPPA: Okay, stage two. Your child, or children in Justine’s case, have arrived. You’ve taken your leave. If both of you want to go back, we talked about this earlier, childcare. Now, we’ve all read and heard about how extraordinarily expensive childcare can be. Is it actually true that the average full-time care in the UK for a child under two costs over £14,000 per year?

JUSTINE: Yep. I think that’s right. The UK has one of the highest childcare costs in the OECD.

PHILIPPA: OECD?

JUSTINE: That’s the Organisation for Economic Co-operation and Development. Otherwise known as the club for rich countries!

PHILIPPA: Okay, £14,000.

JUSTINE: It’s a huge number, yeah. And actually around ^_higher_rate of our users say they cannot afford childcare without going into debt or family help. It’s so prevalent now. This isn’t just affecting the poorest, it’s affecting pretty much everyone. We talked already about gender pay gaps and pension pay gaps. That has so many knock on effects on people because they can’t afford to go back to work.

PHILIPPA: Jonathan, this must be a conversation you’re having with your wife?

JONATHAN: This is a conversation I’ve been having for 15 years with my friends that have been having children in their 20s and 30. They’ve often said it doesn’t make sense to go back to work because we’ll be poorer.

PHILIPPA: Yeah. As you say Justine, this is all over Mumsnet and understandably. I’ll tell you one thing I noticed when my son was really young. Everyone talked about granny and grandpa helping out. My parents were still working full-time and people work longer.

JUSTINE: I think roughly a third of grandparents help out with childcare. So, without the grandparents we’d be really stuffed quite frankly.

PHILIPPA: If you’re lucky enough to have them, Because, of course, not everyone has that family support, do they? People who move to this country, or don’t have networks near them. We don’t live where our parents live anymore, do we?

JONATHAN: Especially living in London. A lot of people move here for work, but their families are still wherever they are. My family’s up north, my wife’s family’s in Birmingham and South Africa.

PHILIPPA: Not handy?

JONATHAN: Not handy, no.

PHILIPPA: So this is 1.7 million women lost to the economy because they’re deciding that these numbers just don’t add up for them. There’s some help available on childcare costs. Kalpana, have you got those numbers in your head?

KALPANA: I do. So, it’s the Tax-Free Childcare Allowance. And actually, it surprises me, I speak to mums at the school gate who’ve no idea what the Tax-Free Childcare Allowance is. Basically, you have to be working for this and there’s a threshold. If you’re working, you can get up to ^{_tax_free_childcare} per year from the government. I would say, go onto gov.uk and sign up to that and get some money. It’s not a lot, it doesn’t fix all your problems at all. There’s still an issue with childcare costs and I think that’s something the government really needs to address.

I also want to add, this is really important to me, and I remember when I wrote about this, so many mums text me. Mums that I hadn’t heard from for ages. When they read that this article was about Child Benefit. Now, I hate the complexity that comes with this. So if you’re opting to stay at home, but you happen to have a combined income of ^{_high_income_child_benefit}, then you don’t get the Child Benefit. But, you should still register for it because it gives you National Insurance credits and that goes towards your State Pension. Women miss out on something like ^{_isa_allowance} in State Pensions because they feel, ‘oh, we’re not entitled to this benefit because our income’s too high as a household’. I’ll always make a little bit of noise about that. If you’re not registered for Child Benefit, just register for it. Even if you’re above the income threshold because you still get the National Insurance contributions.

PHILIPPA: Yeah. So there’s a pension link there, in terms of State Pension entitlement at the end of your life. Because you need a full record of your National Insurance contributions.

JONATHAN: If we’re coming onto pensions, I think we’ve got the State Pension to look at, of course. If people are taking time out of work to look after the kids, they’re gonna miss out on National Insurance contributions and then their State Pension’s going to be lower. And that’s fairly straightforward to understand. I think what’s not so easy to understand is when we look at the private pension provision on the side of that and we look at the impact that taking all that time out of work, or just working part-time, has on, mainly, women’s pensions across the country. At PensionBee, we looked at this. We did this big survey from all our customer data called the Pension Landscape survey. And we looked at the ‘gender pension gap‘, that’s what we called it. And it’s roughly a third - the difference between a man’s expected pension pot at their preferred retirement age, let’s say 64, compared to a woman’s.

PHILIPPA: So it’s a huge gap?

JONATHAN: It’s 33% lower for a woman. So it’s a huge gap. And what we did was model out a few different scenarios for what you could do to try and close that gap. And unsurprisingly, the scenario that essentially reduces the gap to zero is for women to work the same hours as men on the same pay as men. Which means equality. It’s also that there aren’t any better scenarios that we can financially engineer by trying to be clever with the model. If you just achieve that equality with working hours and pay, then the long-term savings gap goes away.

PHILIPPA: I guess what you can also do is get your partner to pay your pension contributions for you while you’re taking time out to raise kids?

JONATHAN: Yeah you can do, but the magic in the system’s that if you get, say your male partner, to take more time off work and look after the child so that you’re reducing their hours and you’re increasing the amount of hours that the woman can work. So you get to parity where the man’s working fewer hours but the woman’s working significantly more hours. Then you get to a point where even though the man’s working fewer hours, actually net, as a family, you’re better off because the woman’s not affected by this long-term trend of much reduced pay over the duration of their career. Missing out on promotions and opportunities. And so, by just introducing a little bit more support from the man earlier on, you can then both have a much healthier long-term career and that’s how you can end up with much better long-term savings as a family.

PHILIPPA: I’m gonna say everyone wanted to do that, that I knew, including me. And I’m gonna ask Justine about this. This is about provision of high calibre part-time work for women though, isn’t it? Because pretty well every woman I know took lower calibre part-time work to achieve what you’ve just described because it’s just not available. You can’t get part-time high calibre work in whatever you were doing before having kids, necessarily.

JUSTINE: I think things have improved a bit since the COVID-19 pandemic because that showed the possibility of hybrid work, working from home and more flexibility, and the world didn’t fall in, despite what people may have thought beforehand. So I think it’s got a bit easier. It’s certainly the thing women want most from their employer.

I feel I should balance the conversation a bit because we’ve talked a lot about women who want to get back into the workforce straight away and don’t want to miss out on promotions - not everyone wants to make that choice. Some people want to take time off to be with their kids. And you’re right, I think flexible and part-time’s something that all employers should think about just as a sort of diversity and inclusion thing as much as anything.

HOW MUCH WILL YOU SPEND AS YOUR CHILDREN GROW UP?

PHILIPPA: Time’s moving on. I’m gonna say we need to move on to older kids. We know there’s a lot of costs in the early years. It doesn’t stop there, does it? Kalpana, your boys are heading towards being teenagers. One teenager, one nearly there. There’s a lot of stuff when they’re teenagers, isn’t there?

KALPANA: There is. I feel like the world’s moved on as well. It’s not just toys, it’s gadgets - expensive ones.

PHILIPPA: Sports kit, music lessons, school trips.

KALPANA: Extracurricular activities or even just going on a camping trip, like my son did recently. Just kitting him out for that cost hundreds of pounds. I’d like to think I’ve taught them well about money. They just happen to hear a lot of conversations in my household about money. But it’s still difficult. And also, as they get older, there’s this thing called fear of missing out (FOMO) that kicks in, so they want what everyone else has got.

PHILIPPA: Sure. Smart ways to plan for that? And I’m also thinking about the fun stuff - the holidays, the celebratory things, all this is part of having kids but I want suggestions for smart ways to make this a bit more affordable. I’m thinking about planning ahead here because there’s quite a lot of stuff you can get at discounted rates if you think ahead, right?

KALPANA: I would say a healthy budget and I hate that word ‘budget’, and I’m sorry I’m using it. But it comes back to those early days of planning and knowing what your expenses are, your essential costs. Then, create some sort of ‘fun pot’ where you’re saving up for certain things. So you can say, ‘this is our holiday fund’ et cetera. And just constantly keeping that going. Don’t let it be your credit card. Try and build that buffer. Just keep building it throughout your life. You can start from even before they’re born and just keep going because you’ll always need to access that pot.

JUSTINE: The other thing you can do’s actually encourage your children to get part-time jobs to pay for their discretionary expenditure. Particularly on things like branded goods, which as you said, there’s a lot of peer pressure. But I think it’s fine as a parent to say, ‘well if you want that, because I wouldn’t buy that for myself, then you’ve got to save up for it.

PHILIPPA: So, did your kids all work while they were at home?

JUSTINE: No.

KALPANA: It’s easier said than done!

JUSTINE: They had summer jobs but not so much Saturday jobs. I used to have a Saturday job in a shop and pretty much all my friends did.

PHILIPPA: Yeah, me too. And a paper round when I was really young.

JUSTINE: That doesn’t seem to exist so much anymore. But I would say, they probably work a lot harder at school now than we did in our day.

PHILIPPA: I think that’s probably true. My son worked in a restaurant when he was in the sixth form, doing A levels. He worked in a restaurant kitchen because he did want to buy a lot of stuff and I did kind of say, ‘Hey, that’s discretionary spending. You’re gonna have to ante-up the cash yourself.’

JONATHAN: But I realised my parents made a saving by substituting my infant labour for the local car wash. I’ve just realised the clever trick. £1 to wash my dad’s car. This was in the 90s though, so £1 went a long way.

KALPANA: I think there’s loads of clever ways that you can just save for your children now. For example, it’s a very big thing in Indian culture to give cash gifts. So every time my children were given cash, and they were literally given it from the day they were born, I stuffed it all into an ISA.

PHILIPPA: You took it from them?

KALPANA: I took it and I put it into a Junior ISA, and it sits there for them to do what they want with it when they’re 18, hopefully something good.

JONATHAN: Just to make the pension comment. Junior pensions are a great idea.

PHILIPPA: And there’s a lot of opportunity now to save quite small sums, I mean really small sums every month and still take advantage of that sort of investment. That’s always my mantra. It doesn’t matter how tiny it is, it’s the regularity and that you start early, and you keep doing it.

KALPANA: Yeah, exactly. And then, another trick that I quite like, and I’ll tell every new parent to do this, is babies grow out of things. Actually even older kids, they grow out of things. So, I sell all their stuff and I actually let them have the money. I thought, ‘Okay, I’ve sold your old Smiggle backpack. You’ve grown out of it but it’s still in good condition’. It all sells on the Vinted app.

JONATHAN: That’s me buying it all, by the way.

PHILIPPA: Now look, I’m gonna drag us on to older kids now because you do need to think about planning for university or some form of training. Whatever it might be at the end of the education process. It’s expensive. This again’s about setting up savings early on, isn’t it? Just so the money’s there because it’s serious money. Having just put my son through university, the rent alone’s savage.

JUSTINE: Yeah, I think there’s a lot of surprise on Mumsnet actually, that the maintenance grant doesn’t really cover the rent and living costs. And when you put in things like travel, and the cost of food and what’s happened to that in the last year or so, it’s simply not enough for most students to get by.

PHILIPPA: And that’s why most of them are working, aren’t they? There was some data out recently, wasn’t there? ^{_pension_release_tax_amount} of them are in paid work. This is during term time. 76% of them saying they’re reporting a negative impact on their study due to the cost of living. So anything parents can do, you kind of feel you want to help them out here because if they’re working, there’s only so much they can do, isn’t there?

JUSTINE: Yeah. And unlike the USA, we don’t really have this culture of saving for college, but I think we’re gonna have to get there.

KALPANA: We’ll just find fewer children end up going to university or wanting to go to university. They might just want to take up an apprenticeship or just go straight into work.

JONATHAN: We’re very fortunate that we’re a few years on from when apprenticeships were seen as a second class type of education and vocational training. It’s received a lot more attention and prestige. And now, if you come out of college and you go and do an apprenticeship in software engineering or civil engineering, you can do things that set you up for a really high profile career. I think it’s really switching people’s attitudes.

PHILIPPA: I need to wrap this up, but I am gonna ask the question of when does it stop? Because we’ve been talking about the bank of mum and dad closing up maybe when kids start work. But of course, most young people under the age of 34 are back with their families, aren’t they? So there’s still costs, isn’t there? Higher food bills, putting them on your car insurance, all that sort of stuff. Justine, are yours back with you?

JUSTINE: One’s at uni and one’s at home because he’s 17, so he’s allowed to be at home. I think the costs do go on and it’s not surprising given the cost of housing. That’s the thing, they’d happily move out. I don’t think there’s any desire to continue living with your mum until you’re 34. But the cost of rents are astronomical, particularly in London and the Southeast. I actually quite like having them around now, but there’s a raging debate on Mumsnet about how much and whether you should ask them to contribute.

PHILIPPA: Well, that was my next question. What do you think?

JUSTINE: Well, I think if they’re working full time, they probably should.

PHILIPPA: I agree. I mean, they’re not kids anymore, are they? It’s just exploitation otherwise.

JUSTINE: But the flip side is that certain parents seem desperate for their kids to move out and so they want them to save that money instead of paying it to them. So that they’re able to get onto the property ladder or onto the rental market. So it’s swings and roundabouts.

PHILIPPA: I guess if you can afford it, you can take the money off them and save it, and then hand it over to them at some stage. But I think in a lot of households, the kids still retain that, ‘But I’m your son, I’m your daughter. You can’t take rent off me’. Yeah, I really can. You’re 28!

JUSTINE: I think we get into the habit of still doing the washing and all the rest of it. So you have to be quite firm and realise it’s not the same as before they were 18.

PHILIPPA: We could keep at this all day, but I’m gonna say thank you very much everyone. Having children, it may not be the simplest or indeed the cheapest experience of our lives. Will you be glad you did it? I would say yes, most of the time. Around the table?

JUSTINE: Absolutely.

JONATHAN: Yeah.

JUSTINE: We’ve got short memories.

KALPANA: Absolutely. I feel like even if we may have sounded negative about the financial aspect. I think it’s just important to remember we do make it work. We just need to get it mentally prepped in our heads.

PHILIPPA: Exactly.

Once more before we go, please remember, anything discussed on the podcast should not be regarded as financial advice when investing your capital is at risk.

We’ll be taking a short break in August, but keep an eye on our feed. We’ll be sharing lots of bonus content to help you boost your financial confidence over the rest of the summer.

We’ll be back in September with a discussion about an issue we mostly try to forget about, death. We know it’s gonna happen. So, how should we financially plan now to make life easier for the people we leave behind? And what do you need to think about if you’re the one dealing with the admin after the death of someone close to you? In the meantime subscribe to The Pension Confident Podcast. Keep up to date with everything we’ve got coming up for you and why not give us a rate or review while you’re there. We always want to know what you think. Have a great summer!

Risk warning

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

The UK government offers eligible retirees a modest State Pension once they reach the age of ^{_state_pension_age} (rising to ^{_pension_age_from_2028} by 2028). With the full State Pension currently worth only £185.15 per week (^{_tax_year_minus_three}), many retirees would struggle to live comfortably on this amount alone. However, not everyone will be entitled to the full State Pension meaning that many will actually receive far less at retirement. So why’s the UK State Pension so low? And what can you do about it?

How’s the State Pension funded?

The short answer is the State Pension’s funded by UK taxpayers, specifically through National Insurance contributions. If you’re employed, National Insurance contributions are usually automatically deducted from your wages enabling you to accumulate ‘qualifying’ years towards your State Pension. If you’re self-employed, you’ll be responsible for making sure you’re paying the right amount of National Insurance based on your income.

You’ll usually need at least 10 qualifying years on your National Insurance record to get any State Pension at all. If you’ve completed 35 or more qualifying years, you’re entitled to the full State Pension, which is worth £9,627.80 per year (^{_tax_year_minus_three}).

Even though participation in the State Pension is mandatory for taxpayers, because National Insurance must be paid by all workers, payments when you reach retirement age aren’t guaranteed. The pounds you pay in through National Insurance aren’t set aside for your own personal retirement fund, like how defined contribution pensions work, but are paid out to current retirees. This means the State Pension system is sensitive to changes in population.

While changes in population can put pressure on the State Pension’s ability to support retirees, political agendas can also impact how meaningful the received benefits are. The government introduced the triple lock commitment to State Pensions in 2010, to safeguard its value against the UK’s rate of inflation. The November 2022 Autumn Statement maintained the triple lock promise, meaning the State Pension will rise by 10.1% from April 2023.

This means the full State Pension, for those retiring after April 2016, will rise to £203.85 per week or £10,600 per year – taking it above the ^{_money_purchase_annual_allowance} benchmark for the first time. The maximum basic State Pension, payable to those who reached State Pension age before April 2016, will rise from £7,376.20 to approximately £8,121 a year (£156.18 a week).

Can I live on the State Pension?

In order to plan successfully for your retirement, you may want to consider what income you’ll reasonably expect to receive. One method of measuring your anticipated retirement income is using the government’s State Pension forecast tool.

If your State Pension forecast’s lower than you’d hoped, you can take action by making voluntary contributions to catch up on any ‘lost years’ on your National Insurance record (which could be caused by parental leave or a period of unemployment), or focus your efforts on boosting your private pensions (like a personal or workplace pension) instead.

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What can I do to retire comfortably?

Research by Which? found two-person households spend around £28,000 a year on average to be ‘comfortable in retirement’. Whereas the Pensions and Lifetime Savings Association (PLSA’s) Retirement Living Standards estimate that two people would need £30,600 a year for only a moderate retirement income, with a comfortable option costing close to £49,700 a year.

The three different types of pension schemes in the UK are the State Pension, workplace pensions and personal (or private) pensions. You may have accrued benefits in each of these pension schemes, or none of them, depending on your personal circumstances. The government’s free Pension Tracing Service can help you find your old pensions, and our pension calculator will help you visualise how much your defined contribution pensions could be worth at retirement, and how long these savings could last if you draw down a desired amount each year.

If you’re over the age of 50 and are considering your retirement options, you may benefit from a free Pension Wise appointment. You can book your appointment online.

Risk warning

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

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

The curtains have finally closed for 2022, following a disappointing market performance across companies and economies alike. Officially the worst year in global markets since the 2008 financial crisis, undoubtedly investors won’t be calling for an encore. So, what happened to make 2022 such an economically turbulent year?

Keep reading to find out how markets have performed this month and what happened to the global economy in 2022?

What happened to stock markets?

In UK stock markets, the FTSE 250 Index fell by almost 1% in December, bringing the 2022 performance close to -20%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index fell by over 1% in December, bringing the 2022 performance close to -10%.

Source: BBC Market Data

In US stock markets, the S&P 500 Index fell by almost 4% in December, bringing the 2022 performance close to -20%.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index rose by over 3% in December, bringing the 2022 performance close to -14%.

Source: BBC Market Data

What happened to the global economy in 2022?

There were several factors causing financial challenges to the world’s economy in 2022: Russia’s ongoing invasion of Ukraine and China’s ‘zero COVID-19 policy’ lockdowns were among the most fiscally disruptive events. As the affected industries (agriculture, energy, and manufacturing) faced supply chain issues, the costs associated rose and were passed from company to consumer.

Rising costs evolved into high levels of inflation, leading to central banks raising interest rates to ease the economic pressure on households. In the UK, a cost-of-living crisis emerged and a recession was announced. Going into 2023, the global economy’s looking weak. Fortunately, inflation’s expected to have peaked in 2022, meaning that 2023 may see the beginning of an economic recovery.

Winners in 2022

Here are the five highest performing company stocks from 2022:

Measuring company performances by industry, only the energy sector experienced significant growth last year. As COVID-19 restrictions were lifted consumer demand for energy increased, yet the ongoing invasion of Ukraine created uncertainty over energy supply, leading to soaring prices. In the UK, energy giant Shell was among the outperforming stocks, with a 40% rise in their share price.

While positive news for the investors of today, these price hikes threatened basic household affordability. In reaction, the UK government intervened in May 2022 with the introduction of a windfall tax (a 25% Energy Profits Levy). Again, in the Chancellor’s Autumn Statement the government announced an increase from 25% to 35% from January 2023 and continuing the energy tax until March 2028.

Losers in 2022

Here are the five lowest performing company stocks from 2022:

One of the hardest hit industries has been the technology sector. Since 2009, the global economy has enjoyed a 13-year bull market period (with the exception of 2020’s COVID-19 pandemic inspired bear market, which only lasted 33 days). The previous bull market was primarily led by the success of ‘Big tech’ companies like Apple, Microsoft, Amazon, Google, and Tesla. Sadly, 2022’s bear market flipped the optimistic narrative.

Companies that rely on consumer spending, especially if the product’s considered expensive or luxury, tend to suffer the most during a recession. As households cut back on costs, that impacts company profits which in turn reduces their share price. Why do these ‘Big tech’ share prices matter? Because as the world’s biggest (and historically, most lucrative) companies, it’s likely the top 10 holdings in your pension include them.

Summary

We’re currently in a bear market. The good news is global markets have recovered from every bear market in history. Moreover, the value of most global markets not only recovers, but typically goes on to reach new highs. Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the COVID-19 pandemic struck markets in 2020.

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

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

Have a question? Get in touch!

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

Risk warning

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

Business owners will face higher tax bills from April 2023, as corporation tax will increase for larger firms and the tax-free dividend allowance is being halved to ^{_basic_rate_personal_savings_allowance}. Corporation tax is currently ^{_corporation_tax_small_profits} for all businesses. But from 1 April 2023 it’ll rise to ^{_corporation_tax} for limited companies making taxable profit of more than £250,000 a year. If you run a profitable business, you may be wondering if you’re taking advantage of all the tax efficiencies available.

Below we explore the top ways to be tax efficient before drawing an income from your company.

1. Take advantage of tax-free allowances

When running a limited company, the first consideration is how to pay yourself. Typically, business owners pay themselves a monthly salary of around ^{_basic_rate_personal_savings_allowance}. This should be tax-free, as UK residents can earn up to £12,570 a year free of income tax (the Personal Allowance).

Directors may then choose to pay themselves through regular or monthly dividends for income above this. Dividends are paid from company profits, after expenses have been deducted and corporation tax charged.

The benefit of paying yourself in this way, is that the tax rate on dividends is lower than income tax, and no National Insurance is payable on dividend income. There’s also a tax-free dividend allowance of ^{_tax_free_childcare} a year for this tax year (^{_tax_year_minus_three}), although this allowance will fall to ^{_basic_rate_personal_savings_allowance} from tax year 2023/24 and to ^{_higher_rate_personal_savings_allowance} from tax year 2024/25.

The below table shows the current dividend and income tax rates:

Bear in mind that dividend payments can’t be offset against corporation tax (unlike a director’s salary). But overall, take-home pay is likely to be higher through dividends than a salary.

2. Contribute to a pension

Paying into a pension’s not only important for a comfortable retirement – it can also reduce your company’s corporation tax bill as pension contributions are usually considered to be an allowable business expense.

You can make contributions directly from your company and benefit by saving on corporation tax. Making contributions through your company could also be beneficial if your official salary’s low (because you mostly pay yourself in dividends), but you want to make pension contributions above this amount. We explain more here about the benefits of contributing to a pension from your limited company.

You can also read more about maximising personal contributions to your pension.

3. Keep net income below ^{_high_income_child_benefit}

UK workers face a 6^{_personal_allowance_rate} tax charge once their annual income hits ^{_high_income_child_benefit}. This is because the £12,570 Personal Allowance falls by £1 for every £2 of earnings above ^{_high_income_child_benefit} (it’s lost altogether once earnings hit around ^{_lower_earnings_limit},000).

For workers with children, the financial hit’s more pronounced. Tax-free childcare - which entitles you to up to ^{_tax_free_childcare} a year per child towards the cost of childcare - stops once an individual’s earnings hit ^{_high_income_child_benefit}. To keep earnings below ^{_high_income_child_benefit}, you could consider contributing to a pension or leave the money in the business. The money could be paid at a later time, perhaps if you have a slower year.

4. Claim trivial benefits

A company can provide employees and directors with ‘trivial benefits’ of up to £50 each time and claim corporation tax relief on the cost. A trivial benefit is a token of appreciation or gesture of goodwill. For example, you might want to send flowers on an employee’s birthday.

If your company employs or has shareholders of five people or fewer, the total that can be claimed in trivial benefits per tax year is £300. Trivial benefits are separate to HMRC’s tax relief for holding an annual event such as a festive party.

5. Utilise capital allowances

Capital allowances allow you to deduct the cost of machinery or business vehicles from your company’s corporation tax bill. Companies investing in qualifying new plant and machinery assets can claim a ‘super-deduction’ until 31 March 2023, cutting their tax bill by up to 25p for every £1 they invest.

The super-deduction incentive was introduced in April 2021 to encourage businesses to invest and grow during the COVID-19 pandemic. What qualifies as a capital allowance can be complex, and the government’s website has more information on how to claim capital allowances.

6. Take out protection insurance

You could take out a life insurance policy through your company and benefit from tax relief. Also known as ‘relevant life insurance’, your beneficiaries get a lump sum if you die during the term of the policy. The premiums (the cost of the insurance) are paid by the company and are treated as a deductible expense against corporation tax.

Overall, running a limited company can be a great way to receive income in a flexible way. Managing a business can be hard work so make sure you consider all the available tax efficiencies to get the most from it.

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

Risk warning

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

This article was last updated on 04/11/2024

When it comes to our finances there are often decisions we have to make. From which savings account to choose to how to budget each month. The amount of money we invest for our future, whether that be in a property or a pension, is another common debate.

Many people in the UK aspire to own a property. For some, they want their property (or properties) to eventually fund their retirement. Recent data suggests those with a mortgage to pay off are paying less into their pensions. They also end up with less retirement income than those who don’t own a property. So with this in mind, should you ever sacrifice one to pay more into the other?

A challenging property market

The question of investing in property or pension has long existed. With the current property market, your priorities may have changed. Homeowners who are tackling mortgage rate increases are having to consider whether to up their payments. And for those who are yet to join the property ladder? The rising cost of living‘s impacting their ability to save for a decent house deposit.

Former CMO at Habito; Abba Newbery says: “For most people, the struggle is to get on the property ladder in the first place.”

If you have ambitions of investing in property, you may have to decide whether to reduce your spending each month or to put less money away for your future.

Unfortunately, as everyday prices rise so does the cost of retiring. The Pensions and Lifetime Savings Association (PLSA) recently reported that the cost of retiring has increased across the board. According to their Retirement Living Standards, the amount you’d need to achieve a minimum standard of living has risen by nearly ^_basic_rate.

So, with the current cost of living and mortgage rates rising coupled with the need for an increased focus on saving for retirement, there’s much to consider.

Getting onto the property ladder vs. saving for retirement

Joining the property ladder

There’s a struggle to balance paying into your pension while saving up for a house deposit. It’s easy to see how the desire to become a homeowner could outweigh the enthusiasm to start saving into a pension. Especially if you’re a few decades off retirement. Property might feel more gratifying than a pension. Plus, pensions can seem far more complicated than property. People might be worried about making the wrong choices when it comes to their pension. Whereas property has typically been seen as a ‘safer’ investment, thanks to house-price growth and lower borrowing costs.

Founder of The Financial Joy Academy and The Humble Penny; Ken Okoroafor says: “We need to get better at helping people visualise the benefits of their pensions.”

If you’re lucky enough to get on the property ladder, there are of course several pros that come with this. Property’s tangible, you can see and experience it. Crucially, you can enjoy it well ahead of your retirement years, whereas you can’t touch your pension money until you reach retirement age. If eligible, you can claim your State Pension from age ^{_state_pension_age} (rising to ^{_pension_age_from_2028} from 2028) and you can withdraw from your personal, private or workplace pensions from age 55 (rising to 57 from 2028).

Saving for retirement

While it may be less tangible than property, there’s a strong case for investing in your pension. With Auto-Enrolment, eligible employees can save into a workplace pension and benefit from employer contributions. This is broken down into:

• Employees have to pay at least 5% of their annual ‘qualifying earnings’, which includes 1% tax relief from HMRC.
• Employers have to pay at least 3% of an employee’s annual ‘qualifying earnings’ into their pension.

Most savers will usually benefit from tax relief on their personal contributions. And when you reach retirement age, you’ll be able to withdraw ^{_corporation_tax} of your pension as a tax-free lump sum. There are also incentives when it comes to passing on your pension when you die. If you die before age 75, your beneficiaries can usually take your retirement savings tax-free. If you’re over 75, your beneficiaries will pay tax at their nominal rate. This is the case for defined contribution pensions, which most modern workplace and personal pensions are.

VP Brand and Communications at PensionBee; Rachael Oku says: “Investment growth is one of the key aims of investing. But with pensions, that’s only really part of the story, there are lots of incentives.”

You can’t touch your pension money before your mid-50s, whereas you can sell your property for the cash at any time. But this can be a benefit to pension saving as pensions grow over time and benefit from compounding. So, the longer you leave your savings invested, the more they’ll grow.

Are there any cons to using your property as your retirement fund?

Getting onto the property ladder is a great financial goal to have. But it’s important to understand the practicalities of using your property for your retirement income. If you own buy-to-let properties, you’ll have the option to sell them or continue generating income from letting them out. But using your main property to fund your retirement might mean you have to sell your dream home. If you want to free up any or all the money you’ve invested in your home, you’ll need to vacate it and downsize.

You also need to consider property market movement. What if the property market dips as you approach retirement? You could end up having to sell your property for less than it’s worth so you can access the cash quickly.

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Should you make mortgage payments at the expense of your pension?

Former CMO at Habito; Abba Newbery says: “I think the opportunity to use your house as leverage is important.”

You might be considering increasing your mortgage payments to pay the debt off sooner. This can be tempting, especially at the expense of a long-term savings product such as your pension, but it’s important to consider your goals. To some, paying off your mortgage sooner brings a sense of mental freedom, while also reducing your living costs.

But there’s also an argument for continuing with steady mortgage payments. This could allow you to enjoy your desired lifestyle, and still put some of your money away into savings. Whether that’s for family holidays, into a pension or ISA, or towards an emergency fund.

If you’re expecting to come into an inheritance in the future and plan to use it to pay off your mortgage, there’s a chance that the amount you receive could be less than you’re expecting. This could be for a number of reasons including senior relatives needing to pay for care in their later life. So if this is something that’s on the horizon for you, it would be beneficial to talk about it with your family and understand the risks together.

Should you take money out of your pension for a house deposit?

You might be considering taking money out of your pension to invest in property. Whether for yourself or to help a family member out. In 2022, 46% of first-time buyers had family help getting their mortgage. If you have children or grandchildren, you might be considering taking money out of your pension to help them with a house deposit.

If you have a defined contribution pension, which workplace and private pensions usually are, you can take money from the age of 55 (rising to 57 from 2028). But before doing so, there are a few things to consider.

If you’re over 55 (57 from 2028)

• Keep in mind how long your pension pot needs to last you. When looking at the whole amount, you might think you can spare some for a house deposit. But once you divide your whole pot by the number of years you hope to live for, things might look different.
• Remember your tax-free allowance is only ^{_corporation_tax}. Anything you withdraw from your pension over ^{_corporation_tax} will be subject to income tax. If you’re withdrawing money for a house deposit, you might wipe out your entire tax-free allowance in one go.
• If you haven’t taken out a lump sum or purchased an annuity, your pension’s still invested in the stock market. So there’s less opportunity for your pot to grow if you withdraw a chunk of it for a house deposit.
• You also need to bear in mind the rules around inheritance tax. If you take money out of your pension, you can gift it to your child or children tax-free. But if you die within seven years, the recipient will be subject to inheritance tax.
• You might be considering withdrawing from your pension to loan your children money for a house deposit. If you give them an interest-free loan, you’ll not pay any tax. However, if you want to charge interest, you’ll have to pay income tax on any interest you receive.

If you’re under 55 (57 from 2028)

• If you withdraw money from your pension early, you’ll be charged a substantial amount of tax. HMRC could view early pension release as an unauthorised withdrawal. This means you could be taxed up to ^{_pension_release_tax_amount} on the amount you take out.

The rules are different for defined benefit pensions but you can contact your pension provider for more details.

Another way some people help their children get on the property ladder is to use equity release. Equity release is a way of turning some of the equity in your home into cash. If you own a property and are over 55, you may be able to release equity from your property through an equity release mortgage - either as a lump sum or smaller regular payments.

There are numerous consequences to such deals that you need to be aware of. The interest rates can be high, especially for younger borrowers, and the interest rolls up over time, so there could be significantly less available for you to leave to family members in the future. There are also repayment charges, impacts on state benefits and other things to consider which are explained in this MoneyHelper guide.

Key things to consider

• Think about how long your retirement is going to be - you might be able to start taking some pension money out from 55, but you’ll potentially live until you’re 90+.
• While things like inflation, mortgage rates and cost of living fluctuate over time, so does the cost of retiring and knowing how much you’ll need later will help you decide where to invest now.
• If you’re a long way off retirement, you might need to consider at what age you’ll be able to claim your State Pension and, if there’ll even be an adequate State Pension in the decades to come that aligns with your retirement goals.
• Keep in mind the practical cost of using your property as your retirement fund - it could mean vacating your family home and downsizing which you might not want to do.
• Diversification’s key and, when saving for your future, is a much better option than putting all your eggs into one basket.
• Make sure you understand the tax implications of taking money out of your pension for a house deposit. And consider the impact on your own lifestyle in retirement.

Listen to episode four of The Pension Confident Podcast and hear our guests discuss the property vs pensions debate. You can also read the full transcript.

Risk warning

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

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 13, watch on YouTube, or scroll on to read the conversation.

PHILIPPA: Welcome to Series Two of The Pension Confident Podcast with me, Philippa Lamb. We’re kicking off the new year by looking at financial personalities. Are you a saver or a spender?

Now, according to financial website, Investopedia, the five common financial personalities are investors, savers, big spenders, debtors and shoppers. Now, you might identify with one or two of those, but what does that mean for your finances? And is it possible to train ourselves to manage our money better? We’ve got three guests with us today to discuss that. Personal Finance Expert and Founder of Mr MoneyJar. Timi Merriman-Johnson’s here. Hi Timi.

TIMI: : Hiya.

PHILIPPA: Certified Money Coach, Mentor and Founder of The Money Whisperer, Emma Maslin, she’s back for her second appearance on the podcast. Hi Emma.

EMMA: Thanks for having me.

PHILIPPA: And lastly, PensionBee’s own Head of Content, Brooke Day, a self-confessed shopper. Hi Brooke.

BROOKE: Hi.

PHILIPPA: Now look, before we start, the usual disclaimer: Please do remember anything discussed on this podcast shouldn’t be regarded as financial advice and when investing your capital is at risk.

WHAT ARE THE DIFFERENT MONEY PERSONALITIES?

PHILIPPA: Now, Brooke, I don’t want to put you on the spot, but tell us a bit more about this shopping habit of yours.

BROOKE: Yeah, so when I was thinking about which personality I am, I definitely identify with the shopper. If I think back to my childhood, the shopping instinct in me has always been there. My brother would save for the big things and I’d get my money and blow it instantly. Before my parents had even handed me the £10 pocket money, I’d already assigned it and more. I was already thinking about the next lot of money. So yeah, I love shopping. There’s a real emotional need for me from that. When I think about what I shop for, it’s always clothes related. So I can really focus on it. I think it’s partly vanity, partly the buzz that it gives me, but I think it’s also definitely formed from my parents - they’re a split of the two personalities. So, my Mum’s a big saver and my Dad’s a big shopper, and I’m definitely a mix of the two.

PHILIPPA: But you always got a nice warm feeling?

BROOKE: Yeah. I love it. Especially online shopping and the double dopamine hit that you get from initial purchase and then when it arrives. But, I’ve tried to be better with myself. If I don’t wear it within two weeks, I was never really interested in it in the first place and it has to go back.

PHILIPPA: Yeah, that’s probably a good rule. But I mean, Emma, there’s more to this, isn’t there? Because like with so many things in life, when it comes to money, we’re not always the best judge of ourselves. Brooke seems to have a pretty good handle on who she is, but not all of us do, do we?

EMMA: No. But I think most people identify with those key categories of personality. Most people will say to me, ‘I’m a spender’ or ‘I’m a saver’. But actually in reality, we have a real mix of these traits of personality and they can be quite situation dependent. So we’ll typically have a dominant personality trait. I personally am a saver and an investor, but there are times, situation dependent, when I can be a spender. So, I think it’s really important to recognise that we aren’t defined by one personality trait. It’s really a matrix rather than a spectrum.

PHILIPPA: Yeah. That’s the nub of this, isn’t it? Because it sounds obvious, financial personality, but as you say, it’s much more nuanced, isn’t it?

EMMA: Yeah, totally.

PHILIPPA: So Timi, given your website’s all about financial education, I’m guessing you know what your natural tendencies are when it comes to money.

TIMI: Yes. Organised chaos.

PHILIPPA: How does that manifest?

TIMI: Well, I read the Investopedia article and I identified with ‘investor’ and ‘big spender’. I like to set money aside for the future, but I’m also willing to take risks to multiply my money as well. I actually took the liberty of doing Emma’s Money Whisperer quiz as well and I came up as the Maverick, and it was the exact same thing. I think it’s important to note that when it comes to personality types, you’re not just one thing. You’ll have dominant personality types, but also, you’ll grow and evolve over the course of your life. I love this time of year because I do my annual Myers-Briggs personality test. I’ve always been an ‘INTJ’, so that’s the introverted personality type. But actually, I’ve found over the last three years that I’m shifting more towards the ‘E’, which is extroverted. This is a result of all the work I’ve had to do for Mr MoneyJar, speaking on shows like this.

UNDERSTANDING YOUR OWN FINANCIAL PERSONALITY

PHILIPPA: Isn’t that interesting? So you’re shifting. Actually, I was going to ask Emma this. When we talk about our financial personality, is it just an extension of our overarching personality or is this something else?

EMMA: It is, because if you think about the people that you know who are organised, who turn up on time, they do tend to be quite good with their money. They can be good planners. That means that they’ll think about the future as well as their here and now. The people that are a bit more chaotic, they can end up in debt because they are the ‘head in the sand’ type people. They don’t necessarily open the post. They’re the people that might ignore downloading the banking app and having that regular connection with what’s going on in their bank account. So yes, there’s definitely a broader piece around what your personality looks like and how it manifests in your relationship with money.

PHILIPPA: So if we get down to specifics, if we talk about a spender, how’s that different to being a shopper?

EMMA: So you get the big spenders who are extrinsically motivated. So, I think of those as status driven people. When they spend money, they’re really looking for external validation from others. So, their bank balance might not actually reflect the stuff that they’re buying. These are the people that might have the flashy cars, put the big holidays on Instagram, but you don’t really know what’s behind the scenes in terms of how they’ve paid for that. Then you get the big spenders who might be naturally inclined to look after other people over and above themselves. The parents that are putting kids through private school whilst sacrificing their own pensions, for example.

A shopper might be somebody who’s looking for bargains. They’re not necessarily spending big, but shopping gives them something. Where I was saying about the extrinsic validation: for a shopper, it’s much more about that dopamine hit that Brooke was talking about. With dopamine, we’re looking for a reward. It’s the chemical in our brain that says, ‘I want the reward and when I get that, I feel something’. It’s really addictive. It’s the act of shopping and the behaviour that’s important for the shopper. For the big spender, it’s much more about the others around them, how they feel about the external.

PHILIPPA: It’s subtle, isn’t it? Because you’re talking about the validation or the hit you get from shopping. I have to admit, I get that even from things like online grocery shopping. It doesn’t have to be some fabulous, designer piece of clothing. Now that I think about it, I can’t quite define what it is, the satisfaction of doing it? The being organised?

EMMA: That’s dopamine. We get it from lots of different places, but it’s that reward that comes and as Brooke hinted - with online shopping, there’s a lot of research that’s coming out saying that it’s giving us bigger hits of dopamine than real life shopping because we get it twice. You get it when you make the purchase, but then when the shopping arrives, you get it again. So, for a lot of people that creates even more of this addiction and actually, a lot of the work I do with people tends to be at the ends of the spectrum of a lot of these personality types, where we’re leaning too heavily on one particular trait of personality and it becomes a little bit disordered in terms of our behaviours.

TIMI: So I’d never thought of it in terms of a double dopamine hit. I think I get a triple one. The first dopamine hit I get is actually ‘adding to basket’. So, the pattern interruptor I’ve developed for myself is what I call the ‘digital window shop’. If I know I don’t want to spend money, I’ll sometimes go onto a website, browse as if I’m gonna buy, put it into my basket and then just not buy it. That’s sometimes enough for me to get my dopamine hit, but not have the effect on my bank account. I think we’ve all done this, at least I have, back in the day with the Argos catalogue. You’d leaf through it with your biro and you’d circle all the things your parents were never going to buy you!

PHILIPPA: Debtors Emma. How does it manifest?

EMMA: It can be education that’s the root cause of people getting into debt. It can be situational, for example a loss of job, that means people may find themselves in a situation where they’re having to rely on credit. But there can also be a piece around childhood and what causes this behaviour where we bury our head in the sand. A really good example with children is where we might say, ‘it’s rude to talk about money, don’t ask that person how much they earn’. So as a child, you internalise, ‘Hmm, money isn’t something to be talked about’. That’s a reasonable interpretation for a child at that point that they were told that. But if that becomes the script that dominates how they approach money throughout their life, that’s maladaptive as an adult. And yet for a lot of people, those scripts do continue.

PHILIPPA: Thinking about pros and cons of some of these categories. I mean, obviously some of them look better than others, but if we take investors, is there a downside to that? This sounds like a universally good thing.

EMMA: There are pros and cons. An investor, probably for most people, would be the aspiration. But, there are some people who are thinking too much about the future at the expense of spontaneity and being able to enjoy the moment. A lot of the work that I do’s emotional. What’s the emotion that’s driving that behaviour of saving for the future? Is it fear? What are you scared of? Are you scared of running out of money when you’re older? Or maybe you’ve seen older parents or grandparents who’ve struggled with care in later life. Are you fearful of that for yourself?

PHILIPPA: Too risk averse?

EMMA: No. Because if you’re investing for the future, I’m really saying, are you balancing and making sure that you’re living enough in the moment, that you’re enjoying life now? We don’t want to just be thinking of the future. We don’t want to just be thinking of the here and now.

TIMI: Well the future’s entirely unknown and I think that 2020 showed us that. Any plans that we had in January 2020 - we had to get rid of them by March, April that year.

PHILIPPA: Yeah. But it’s that insurance against the future. The saving and investing, just making sure there’s always a little bit of a safety net.

EMMA: Again, most people think it would be great to be a saver. But saving and not investing isn’t a great place to be in because if you’re saving money, you’re doing a good thing, but actually if you’re too risk averse and you’re not thinking about putting money into investment vehicles, then you’re at the mercy of inflation. So, we just need to taper and make sure that there’s nuance here because it’s really important to be risk aware. Even the saver isn’t necessarily a good trait to have if you lean too heavily into it without looking at some of the other things like spending, saving and investing.

BROOKE: I think that’s a really good point about being a saver. I think I’m more a saver than an investor at this point, but I think I want to work towards being more of an investor. When I was younger, I was taught to save money and that was having a savings account. You don’t really make much money on it. I didn’t really know about any other kind of products. So, I had savings products, but I didn’t have investment products. And now, by virtue of the job that I do and the industry that I work in, I’m learning more that by leaving my money in my current account or in a really low interest savings account isn’t going to get me anywhere. So, I need to make it work harder. I think that’s the biggest adjustment. It would be interesting if we had this chat in a year or two years’ time to see what my personality was.

PHILIPPA: This huge uplift in inflation has made a lot of people understand that, maybe for the first time. Particularly really - younger people, who’ve just never seen that before. But now, you leave your money in a bank account when they’re not giving you any interest, you might as well just throw it away. Everything we’ve talked about so far does rest on us understanding who we are. Emma, how do we do it?

EMMA: There are various different personality tests out there. I use a couple in the work that I do. A really good one’s Money Habitudes. I don’t know if any of you have ever taken the money Habitudes test? It comes as a pack of cards so you can do it in real life with your partner or your kids. There’s various online tests as well. They ask you questions like, ‘if you were at a meal with friends, would you feel uncomfortable when the discussion of the bill comes up?’ How does everyone feel about that? Does it bring up an emotion in you or do you just flick kick credit card in?

PHILIPPA: It depends who you’re with, doesn’t it?

EMMA: Does it?

BROOKE: It’s funny because I feel like my instinct is always ‘just split it’ and actually, I find it annoys me. It probably makes me think I don’t wanna go for dinner with someone if they say, ‘I only had the starter’. But then actually you think, ‘fair enough, good for you’. I don’t know, maybe they’re a debtor and they’re trying to get out of that.

PHILIPPA: It’s the non-drinkers that I always feel sorry for. If you’re not drinking alcohol, that’s half the bill, isn’t it? Most of the time. Having said that, I’m a drinker, but moving along.

EMMA: But these types of conversations come out of taking these personality tests. I very much think that there’s so much shame around money. Quite often because we see how other people are doing things and we feel that we should. There’s so much ‘should’ in the personal finance space. ‘You should do this, you should do that, I should be like that person’. No, you are you, you’re navigating life through your lens and your lens is a product of your education, your experiences when you were young. Knowing that’s so important because it really helps you lift a lot of that shame. Say, ‘if I can understand who I am, I can best navigate my circumstances in a way that feels good to me’. And a lot of the work I do is actually around the nervous system because when we feel outta whack, when we’re pushed outside of our window of tolerance, we might go into fight or flight mode.

Actually, we become somebody whose brain is operating from our subconscious. It’s not the rational part of our brain, which can say, ‘I should save’, ‘a pension’s a good product’, ‘my budget is my saviour’. All of that goes out the window when we’re operating from our animal instincts. What drives the animal instincts is those scripts that were developed when we were young to the extent that they’re maladaptive, to the extent that they’re saying something like, ‘money is secretive’ or ‘only greedy people can be rich’. If you have that as your loop that’s running in your brain, you’re not going to become an investor. Actually, we need to learn how to regulate our nervous systems, which is really difficult in modern day life, so that we can make practical decisions from a rational standpoint rather than being emotionally driven.

TIMI: The way that I’ve been able to get over the nervous system point’s automation. When it comes to saving, just set up that standing order to your separate savings account and let it run.

PHILIPPA: It’s not a decision, it just happens?

TIMI: It just happens using budgeting software which automatically categorises your spending. You just need to review and check it. I do that every week. I like relying on tools and things outside of me, systems that can help me make good decisions.

BROOKE: Yeah. It’s really complicated. We’ve discussed this so many times. The government puts things in place that we don’t understand, so sometimes it’s easier to just tune out of the conversation. But I think you’re right about using automation, there’s so many tools out there now. Or why not try talking to your friends to try and get a better understanding. Knowing whether you should have a LISA or put your money in a pension, it’s hard. Sometimes there’s that product overwhelm. You’re like, ‘oh there’s so many things, should ever Cash ISA, should I have a Help to Buy ISA?’ Yeah, it’s a lot.

CAN YOU ADAPT YOUR FINANCIAL PERSONALITY FOR THE BETTER?

PHILIPPA: Just recapping a moment. So we’re saying the key thing is that you can be a mixture of different personalities when it comes to your finances. You’re an individual and there’s no point pretending there’s a quick fix that’s going to work for everyone. Would that be fair to say? It strikes me that it’s a bit like dieting. It’s a bit like losing weight, isn’t it? You have to find the thing that works for you and not the thing that just works for you for three months, six months - lasting change. So, I want to drill down a bit more into that. Let’s work our way through the categories and think about fixes for them. So that we actually come up with some useful steps and let’s kick off with shoppers because we understand now and we talked a lot about the impulse, and where it comes from, and why it’s so lovely. How it manifests itself - whether it’s designer clothing or in my case: groceries. So Emma, thinking about shoppers, I know you’ve got a point about the emotional value you’re able to place on saving money for the future instead, haven’t you?

EMMA: Yes, but actually, I’m going to give you another tip around shoppers and I’ll come back to that one. With shopping, my biggest tip to people who want that hit is to try and flip it and understand what it is that they’re trying to get in that moment. I’ll use myself as an example. When you’re in the moment, the question to ask yourself is, ‘what is it that I need right now?’ When you delve into that, for a lot of people it might be, ‘I’m sitting on the sofa on a Friday night’, using myself as an example - my husband watches a lot of football, I’m not interested in football. I’ll flick onto Instagram - loads of adverts, right? If I ask myself the question, ‘what is it I really need right now?’ It’s actually connection. Because I’m feeling a bit lonely or bored, right? Asking that question is so valuable because actually I can say, if it’s connection I need, I can pick up the phone to a friend, have a conversation and that’ll give me that emotional hit that I need so that I don’t feel lonely anymore. I don’t need to shop because that isn’t going to give me what I actually need at this moment. Asking yourself that question is so, so valuable. For some people it might be, ‘I need physical connection with somebody’ and that might be, ‘let’s go out for a walk’. It might be, ‘I need exercise’, whatever it is. But there will be a need that you’re fulfilling through shopping, that shopping actually isn’t going to give you the satisfaction. So, asking that question is so, so valuable.

PHILIPPA: Interesting. A sticking plaster, in other words, for the stuff you’re not getting.

TIMI: I think for me, I definitely see myself in the shopper archetype, but maybe more so in the past. I try to give myself permission to shop but I try to buy things that will last.

PHILIPPA: So what sort of things would you buy?

TIMI: Things that last are high quality clothing and items, things that improve your health, memories and skills. These are things which when you part with your money, will stay with you potentially forever. And so I’ll use the ‘cost per use’ metric. So actually, a £200 pair of headphones that you use every single day and helps you to focus when you’re in the library and when you’re working might be a better buy for you than 10 cheap pairs over a longer time period that break after six months. I use cost per use a lot. When I buy stuff, it’s not that buying stuff is bad, it’s just that if it lasts me, then I know I’m making a good investment in that item.

BROOKE: There’s something in that actually, about experiences and holidays, because I really noticed my shopping habits changed the most post COVID. I didn’t want physical things anymore. I wanted to go on holiday. I wanted experiences with my friends. Those were the things I had missed the most. Then suddenly, I wanted to spend my money on those things and now I’m like, ‘okay, I need to find a middle ground’. I think before, I just kept spending without thinking because I just wanted to do all those things we weren’t allowed to do. And now I’m like, ‘okay, life is a bit normal’. We can’t just accelerate and spend at the same rate anymore.

TIMI: I think memories are massively underrated. You could buy a top and wear it at one event, and just never, ever wear it again. But if you go on a trip with some friends, even if it’s not particularly lavish, that’s something that later on in your life, you could also be laughing about. That time when your mate did something. So, I think they’re well worth investing in.

EMMA: I just want to add something on with this. Values are so important here as well because each of you have just given me an insight into what your values are. It’s something I wish we taught children before they left school because when you know your values, you can live a much more fulfilled life. Where people are just shopping for the sake of it, scattergun, with the things that a year down the track they’ll be like, ‘well what did that give me?’ It didn’t give me anything apart from satisfaction in the moment. If you spend money, value aligned, it focuses where you direct your money to but it also gives you so much more intrinsic satisfaction. I wouldn’t tell anybody who has health as a high value not to spend on a gym membership or a personal trainer because that, for them, is so important to who they are. But when you know that, it becomes really easy to direct your money to the things that are important and actually you can cut out spending on the things that don’t give you that satisfaction.

PHILIPPA: I guess you can bring your wider values into your habits can’t you? If you think about things like societal values, for example, we want to be greener, fashion - the disposability, the throwaway culture, all that stuff. If you attach that to your shopping habit, it gives you a bit of a pinch doesn’t it? If you’re buying too much stuff that you’re only gonna use once. It’s interesting. Can we just go back to that emotional value point? Because I thought that it was interesting that you talked about saving money for kids, education, dream homes, that whole thing of throwing forward to stuff you really value, rather than spending right now.

EMMA: Big picture planning’s really important for everybody. Some of these personality types - the big spenders, the shoppers, it’s very here and now, their focus. Being able to say, ‘what is it that when I’m in my sixties, seventies, eighties, I can look back on life and say I had a meaningful life, I lived life in accordance with my values, I got out of life what I wanted to’.

TIMI: That I was happy.

EMMA: Yeah. I was happy, but also maybe those around me were happy. I did the best for my children. Being able to think about that now so that you can put in place the steps to make sure you can have that conversation with yourself when you’re older is really important. We aren’t taught to do that. We don’t naturally do it, but it’s a really, really valuable exercise because again, it can make you see that you’re not going to get to that place down the track unless you take action now.

PHILIPPA: And the price of not doing it is regret and no one wants that.

BROOKE: It’s funny because we were talking outside before we started recording and I was saying that in my early twenties, I always kept talking about wanting to buy a house in London, I really wanted to live in London. But it felt like this pie in the sky dream and I was like, ‘oh I’m single, I’m never going to do that’. I was just sort of kicking the can and the responsibility down the line. When I meet someone, that’s when I’ll take this goal seriously and I’ll start saving. And I remember just one day having a word with myself being like, ‘this is ridiculous. Why am I pinning this moment that I want on waiting for somebody else or something to happen that may or may never happen’? Then I went and opened a Help to Buy ISA and I started to take savings seriously. I had this end goal in mind that I was going to achieve and knowing what I was saving for, and that I was the one responsible for that really empowered me to make it happen. But I think it was the first moment that I’d really thought, what do I actually want? I’m putting this money in an account, it’s arbitrary. I’m going on holidays with my friends and it’s all really fun, but I’m not really speaking about the bigger things or if I’m thinking about the future, I’m thinking about, well I’ll do that once I get inheritance money or once I meet someone and we halve everything. Then I realised that I wasn’t really taking accountability for my own money.

TIMI: Thank you for sharing that.

PHILIPPA: I think that’s very encouraging. Because as you say, it’s about you isn’t it? Not just waiting for someone else to make your life happen. And then, if someone comes along, great. That’s a bonus, isn’t it?

BROOKE: I think it’s easy to blame society. I’m not discounting that, but I think once I realised I was the one in charge of making these things happen, it gave me a better sense of agency, but also I was just really proud of my achievements. So now I’m in this one bedroom flat that I’m like, ‘oh, all of this is mine and I made it happen’. And there’s no better feeling than that. So then, when my friends and family come over, they see this was the thing that I wasn’t coming to dinners for or when I was saying no, so that now we can sit here and have a tea together. Now, I’ve got to think about what the next thing is that I want to save for.

EMMA: Yeah, you do!

BROOKE: Because now I feel I’m at a bit of a loss. What am I saving for? I think I’ve realised what works for me and that’s when I know what it’s for, then I can really put a lot of effort into saving for it.

EMMA: You make another really good point. Having financial goals helps us to lean into that trait of the saver. If we don’t have goals, if we don’t have a plan, it’s very easy to fritter.

TIMI: I don’t do it daily at all, but the thing that I try to do every day, which I find helps me to get a bit closer to who I am and what I’m living for, is journaling. So just judgement free, writing a letter to myself, just my thoughts, my feelings or whatever. Every day. I think it helps you to answer some of those questions in terms of, what are my values? What’s important to me? What am I saving for? So I know through years of journaling, I’ve been doing it since 2016, 2017, that actually, family’s very important to me. I’d love to be in a position financially, I’m the oldest of three brothers, where I can look after both of my brothers. If it’s Christmas or their birthdays, I can buy them stuff and I can look after my mum. That’s the first, almost circle, that I want to take care of. They say if you want to change the world, you need to start with the world around you and that’s the world that’s around me. There’s just so many inputs all the time in life with other people’s opinions, new social media and stuff. So I think that if you can take time to do things like journaling, meditation, time which is just you by yourself without all of these inputs in, it puts you at a tremendous advantage versus other people. Because you’re cutting out the noise.

PHILIPPA: Thinking about what you want your life to be. Rather than just being carried along in this tide that we’re all in from the day we’re born.

EMMA: I don’t know if you’re aware Timi, but actually those two things that you’ve mentioned: journaling and meditation are really good for your nervous system. I know I’ve already mentioned the nervous system. The train’s late, or it’s raining and you’re wet to turn up to a meeting, or your boss tells you off, or the children have ripped their new school coat. All these things add up and they fill our cup and suddenly we’re overwhelmed. I think for so many of us, especially with the last three years that we’ve had, that cup’s so full that it’s creating a normalised level where we’re just not making the right decisions. So collectively, we do need to calm, bring calm to ourselves.

PHILIPPA: We’re moving into life coaching. I’m not sure that’s a bad thing actually because I’ve often thought this, that when we talk about money in the society we’re in, it’s something on the edge of our lives. And actually, it does stem from everything else going on. What you’ve talked about Emma, resilience, that sense of feeling that we’re strong enough to deal with whatever’s coming so that we can take stock, and plan and pursue our goals. Whatever it takes for you to build that resilience - for me, it’s the gym four or five times a week. It keeps me sane and rational. So whatever it is, that’s not a bad starting point, is it?

EMMA: Well, I’m a Financial Coach, but I always say to people, this isn’t about money! It’s about your wider life. Money’s just a tool for us to live our lives. Whatever else is going on in your life is so, so important. And if you’ve got out of kilter in one area - relationships, or career, or whatever, it’ll have an impact on your financial life. Money’s a manifestation of whatever else is going on in your life.

PHILIPPA: It is, isn’t it? And interestingly, next month we’re going to be talking about how your relationship status, whatever relationships you’re in, affect your money. Because as you say, it’s absolutely vital. But look, I need to wrap this up. Thank you everyone for being here. It’s just been great.

EMMA: Thank you.

BROOKE: Thank you.

TIMI: Thank you.

PHILIPPA: If you’d like to find out more about everything we’ve talked about, check out the show notes. We’ve shared lots of helpful links and resources in there for you.

We’d love to hear your feedback about the podcast. We’d really like to weave your thoughts and ideas into episodes. Whether you’re a PensionBee customer or not. Email us at podcast@pensionbee.com. You can leave us a review on your podcast app. If you’re super short of time, you can give us a star rating on Apple Podcasts. It literally takes five seconds and we would really appreciate it.

Finally, remember to follow us to stay up to date with all the new episodes. Thanks for being with us.

Risk warning

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

This article was last updated on 20/06/2025

If you’re able to spare money to boost your savings, you’ll want the best rate of return. There’s plenty of distinct savings accounts available in the UK:

• bonds;
• easy-access savings;
• fixed-rate savings;
• investments;
• ISAs;
• cash saving accounts; and
• pensions.

With different benefits to consider like compounding returns and tax relief - it can feel tricky to know which product’s best for your savings goals. It’s good to ask yourself:

1. Is the growth of your savings account determined by a fixed-interest rate or fluctuating investment performance?
2. Are contributions and withdrawals to your savings account permitted or restricted?
3. And are your savings taxable or do they benefit from a tax-exempt status?

Most important of all, are you looking for access or growth? Cash savings are usually easier to access money from, while investments (like pensions) usually offer better growth in the long-term. Here’s a breakdown of cash savings vs. topping up your pension pot to help you decide which could be the best place to put your spare money and boost your personal wealth.

Cash savings

For short-term, or emergency savings, you may wish to look for accounts which offer instant access to your money. Cash savings are widely considered a good option to squirrel money that you’re likely to need to dip into soon. By keeping your money in cash (instead of tied up in investments) you’re likely to get a fixed-interest rate on your savings.

There are three common types of cash accounts:

• Cash ISA;
• easy-access; and
• fixed-rate (including bonds).

Savings in a Cash ISA or Premium Bonds are tax-free. You can use your Personal Allowance to earn interest tax-free on other cash saving accounts, as long as you haven’t used it up on your income or pension withdrawals.

Benefits of saving into a cash account

• easier access to your money; and
• likely to offer guaranteed returns.

Drawbacks of saving into a cash account

• interest rates can be lower; and
• unlikely to outperform inflation.

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Pension savings

For long-term saving goals, such as your retirement income, you may wish to prioritise growth over access. Pension savings are considered one of the most advantageous savings vehicles. Most basic rate taxpayers usually receive a tax top up from the government when they contribute to their pensions. For example, for every £100 you pay into your pension, HMRC would usually add £25, taking the total to ^{_lower_earnings_limit}. Plus, by spreading your money across a mixture of bonds, cash and company shares (a strategy known as diversification) you’re likely to get a competitive rate of return on your savings. Most pensions are already diversified, across a range of locations and asset classes.

There are three common types of pension:

• personal pension;
• the State Pension; and
• workplace pensions.

How you earn and grow these pensions are the biggest difference between them. You’ll accrue your State Pension from National Insurance contributions, and will need to have paid for over 35 years to qualify for the full amount.

Workplace pensions are either: defined benefit (calculated using your salary and years of service), or defined contribution (determined by the investment performance of you and your employer’s contributions). Personal pensions are also defined contribution and you can set one up yourself. They’re particularly useful for those with several old pensions they’d like to consolidate, or the self-employed who may never have started a workplace pension.

Pensions have two unique factors when compared to other savings: age-limit on withdrawals and the potential to receive free money, in the form of tax relief and employer contributions. Currently withdrawals are available from ^{_state_pension_age} (rising to ^{_pension_age_from_2028} by 2028) for the State Pension, and normally from 55 (57 by 2028) for both personal and workplace pensions. This benefits long-term savers as their initial contributions are often boosted with tax relief and their annual growth is reinvested into their plan, so it can snowball into an even bigger amount over time.

Benefits of saving into a personal or workplace pension

• compounding growth;
• tax relief on contributions; and
• employer contributions if auto-enrolled.

Drawbacks of saving into a personal or workplace pension

• age-restricted access; and
• no guaranteed returns.

Pension vs. savings

Keeping up with regular savings isn’t always easy. From market volatility to inflation, various factors can impact how much you’re able to put into savings or contribute to a pension. Tools like our Inflation Calculator can help you understand more about the impact of inflation on your pension savings and how far they could go in retirement. However, even putting aside a few pounds a month can help us save for the future.

What would saving £8 a month look like in cash savings vs. a PensionBee pension?

The following scenario is for illustrative purposes only and assumes:

• monthly saving of £8, with £2 tax relief added by HMRC;
• paying an annual management fee of 0.7^{_personal_allowance_rate} on pension; and
• both savings achieving investment growth of 5% per year.

A decade of saving £8 a month amounts to £960 of contributions. Saving the same amount in a 5% fixed-rate cash account would earn you £307.85 in interest. Whereas saving your money in a pension accumulating 5% growth (and costing 0.7^{_personal_allowance_rate} in fees) would grow your savings by £563.76 (of which £240 is from tax relief alone).

Pension or savings - which is best?

The answer will depend on your existing financial situation and your retirement expectations. Ultimately we save money to build our financial resilience and enjoy ourselves. If you’re still paying down expensive debt, or you haven’t set up an emergency fund yet, that’s a great focus if you’re wondering how to efficiently save any spare cash. That being said, if you have a little leftover each month, you could start to build up your future retirement wealth with a regular contribution to your pension.

Listen to episode 29 of The Pension Confident Podcast and hear from our panel of expert guests as they discuss the pros and cons of pensions and cash - and how you can make the most of both. You can also watch the episode on YouTube or read the transcript.

Risk warning

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

This article was last updated on: 15/01/2024

Your financial wellbeing in 2024 can be improved by the decisions you make today. January’s notoriously a great time to slow down and take stock of your financial situation and get excited about your financial future. As we’re entering 2024, maybe it’s worth giving your money an MOT? By taking the time to review your finances, you can help ensure your financial wellbeing’s in the best shape possible.

What is financial wellbeing?

Financial wellbeing involves having the financial knowledge and ability to make informed decisions, the resources to meet essential needs and plan for financial security, as well as the resilience to deal with financial shocks. Simply put, financial wellbeing is the ability to achieve personal goals and live a life free from financial stress. Here’s how!

Your 2024 financial MOT checklist

Financial MOTs are pretty straightforward and ensure your money’s moving you forward, towards your goals. The key areas that’ll need reviewing are your budget, debts, and investments.

Pre-MOT financial checks

Before you complete your financial MOT, you’ll want to make sure your financial records are organised and your financial accounts are secure. Here’s what this means in practice:

Organising your financial records means having all the necessary financial documents stored in one place, which is easily accessible. This includes bank and credit card statements, policy paperwork, invoices, payslips and other documents. If you decide to switch banks or pension providers, having this information to hand can save you the pain of rummaging through drawers, or waiting to receive new copies.

Securing your financial accounts means ensuring that your personal information is safe from potential hackers. This includes setting up strong passwords, using Two-Factor Authentication, and keeping your devices up-to-date with the latest security updates. By following these steps and securing your accounts, you’re less likely to be the victim of fraud.

Once you’ve assessed that everything’s safely in its place, it’ll be much easier to begin your 2024 financial MOT checklist. Simply ask yourself:

1. Are you financially resilient if your income hits the brakes?

The amount of income you need to maintain your standard of living will vary depending on your individual circumstances. However, it’s generally advisable to have some savings or other financial reserves in case your income stops unexpectedly. A good rule of thumb is three to six months’ worth of expenses in an easy-access cash savings account. The amount of money required may feel high, but small and regular savings can get you there.

Having a budget and regularly monitoring your spending can help you be more financially resilient. If you need a helping hand keeping track of your saving and spending habits, there are plenty of money apps for your smartphone which can support your financial resilience.

2. Are you overpaying for your pension?

Pension providers commonly charge an annual management fee to cover the administrative costs, but some add more costs like: contribution fees, exit fees, fund fees, inactivity fees, investment fees, platform fees and service fees. Individually they may only take a small percentage of your pension, but stacked up together they can have a real impact. Research revealed UK savers may pay £12,000 more over 15 years from fees on old pension pots.

High charges don’t necessarily correlate to high performance. If your pension pot’s small and isn’t receiving regular contributions, these high charges can erode the value of your pension to nothing. Decades of paying over the odds for your pension can ultimately reduce your retirement income in later life. You might be able to reduce your fees by combining your old retirement pots into a single lower-cost pension plan.

3. Are your investments causing more harm than good?

Increasingly many investments are given an ‘ESG‘ rating. ESG stands for Environmental, Social, and Governance. It’s a set of criteria used to evaluate a company’s sustainability and its impact on the environment, society, and the way it’s governed. Investors may use these ESG factors to gain insights into a company’s long-term sustainability.

If you’re concerned about your investments negatively impacting our planet, you may want to consider researching the companies you’re invested in. You can review the sustainability rating of your pension, for instance, from the investment website Morningstar to see how aligned your money is with your beliefs.

Alternatively, if you want to make a positive impact with your pension, you can actively choose to invest in an ESG fund that does all the in-depth research for you in their screening process. An example of an ESG fund is PensionBee’s new Climate Plan, which invests exclusively in companies addressing the world’s great social and environmental problems, whilst saving for your retirement.

There’s no doubt that setting financial goals is important for everyone, regardless of your age or experience. Having specific and achievable goals can help you stay on track and avoid feeling overwhelmed, which can lead to more successful and satisfying financial decisions. There are a few things to keep in mind when setting financial goals:

• Choose goals that are achievable. Using an existing method, like the 50-30-20 budgeting framework, may help you save. If you’re hoping to save £1,000 a month but only make £12,000 a year, it’s likely you won’t be able to reach this goal. Figure out if you’re saving for the long-term (pension) or short-term (holiday), as the longer you’re saving the more compounding will do the heavy lifting for you.
• Build goals that are relevant to your current situation. If you’re just starting out in your career, your goal may be to save for a downpayment on a house. If you’ve recently become a parent, your goal could be saving for your child’s education.
• Make sure your goals are time-sensitive. If you want to save for a car or house purchase in the next five years, make sure your goal is specific enough so you can build momentum and track your progress.
• Ensure your goals are motivating. If you’re feeling overwhelmed or discouraged, it’s going to be harder to stick to your goals. Try setting goals that are fun or inspire you to save towards them.
• Review and update your goals regularly. It’s important to check in and make sure you’re still on track. If you find that your needs or circumstances have changed, you can update your goals accordingly.

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Key takeaways for improving your 2024 financial wellbeing

1. Keep your records organised and your accounts secure.
2. Save three months’ worth of expenses, in case of emergencies.
3. Check out the competition for cheaper provider fees.
4. Decide if impact investing’s right for you.
5. Set a financial goal, and stick with it!

Risk warning

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

At PensionBee, we consider the security of our customers’ accounts to be of the utmost importance. Security measures at PensionBee range from a variety of different controls, including encryption of sensitive data, use of firewalls, anti-virus software and much more. The approach is a ‘defence-in-depth’ model and our staff are also continuously educated on security best practices.

As a customer, there are some simple steps you can take to help keep your PensionBee account secure and stay safe online. One of those is to use two-factor authentication (2FA) also known as two-step authentication, and it’s a feature we’ve built into your PensionBee account.

You may have come across 2FA previously or perhaps you’re already using it to secure other personal accounts you own. If you’re not familiar, 2FA is designed to make sure that you’re the only person able to access your personal account. It helps keep your accounts secure by requiring you to provide a unique piece of information that only you have, in addition to your password, to log into your account. 2FA can take several different forms but typically involves sending a unique code to your personal device.

What makes 2FA effective as a security measure is that even if someone else knows your password they’ll also need that crucial second piece of information to access your account. This follows the principle of Strong Customer Authentication (SCA), which is a control to implement two of the three ways listed below to verify if it’s your account, hence the phrase ‘Two-Factor Authentication’:

• ‘Something you know’ - this is a piece of secret information that only you know, like your password.
• ‘Something you have’ - this is a device you own, like your mobile phone.
• ‘Something you are’ - this is something that is unique to you, like your fingerprint.

How to turn on 2FA in your PensionBee account

If you haven’t already, you can turn on 2FA through our website or mobile app, simply log into your PensionBee account and follow the below steps.

1. Head to ‘Account’ and select ‘Two-factor authentication’ from the menu.
2. Enter your mobile phone number and we’ll send you a text message with a unique security code.
3. Enter your security code onto your Account screen and select ‘Next’.

That’s it! You’re all set up. Now, the next time you log in to your account with your email address and password we’ll text you a security code.

If you haven’t already enabled 2FA we strongly recommend turning it on. Setting it up only takes a few moments and instantly helps keep your PensionBee account secure.

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

Recently, UK headlines have been circling around three key areas: the cost-of-living-crisis, the government’s economic strategy, and strike action. It’s safe to say that no-one’s enjoying the combination of rising interest rates and inflation being reported. If you’re worried about the impact of inflation on your pension pot, we’ve launched our inflation calculator to help you understand how your pension could be impacted.

But it’s not all doom and gloom when it comes to your pension.

January has given many investors in company shares a small win, as major stock markets across America, China, Europe, and the UK grew between 4% and 9% last month. While performance over the past 12 months is still down overall, the outlook for company shares in 2023 is cautiously optimistic. For bond investors, it’s been a buoyant start to the year. While the Bloomberg Fixed Income Index has fallen 8% in the last year, it’s also recovered 3% over the past month, setting the scene for a slow return to bond stability.

The reason for this nascent recovery is that many market observers believe interest rates have peaked or are close to peaking as inflation cools. For example, On 2 February, the Bank of England raised interest rates (again) to 4%, up from December’s 3.5% rate. UK interest rates are now at their highest for 15 years. Data indicates that interest rate rises are working. The Office for National Statistics released data showing that inflation was at 10.5% in the 12 months to December 2022, a slight drop from November’s figure of 10.7%. While small, it’s still promising news for the year ahead.

Keep reading to find out how markets have performed this month and what can we expect for 2023?

What happened to stock markets?

In UK stock markets, the FTSE 250 Index rose by over 6% in January, bringing the 12-month performance close to -9%.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by over 9% in January, bringing the 12-month performance close to ^{_personal_allowance_rate}.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by almost 8% in January, bringing the 12-month performance close to -1^{_personal_allowance_rate}.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index rose by over 9% in January, bringing the 12-month performance close to -11%.

Source: BBC Market Data

What’s forecast for the global economy in 2023?

Overall, the global economy’s expected to experience a slower growth trajectory in 2023. While 2022 saw a united front across Central Banks, as they raised interest rates to lower inflationary pressures, we’re anticipating a more divided approach in 2023 as economies travel at different paces. The direction, and speed, of individual countries’ inflation and interest rates will be the deciding factor in their economic recovery. We’re also still witnessing war in Ukraine and other geopolitical developments that can impact financial markets negatively.

What does this mean for you? Simply put, diversification. Having your money spread across different asset classes, geographic regions, and industries, can help reduce the chance of your savings being impacted by a single event. It also helps to balance out potential losses with potential gains, and can help you to take advantage of different market opportunities. If you’re a PensionBee customer, you can visit Plans for more information on the diversification of our plans/investment products.

Summary

2022 was a difficult year for financial markets, but January has been positive for financial markets, which will impact pensions in the UK. Whether we are now in a full recovery will be determined by the macroeconomic and geopolitical events of this year. 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 2023?

Have a question? Get in touch!

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

Risk warning

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

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 14, watch on YouTube, or scroll on to read the conversation.

PHILIPPA: Hello and welcome back to The Pension Confident Podcast with me, Philippa Lamb. This month, hot off the heels of Valentine’s Day, we’re looking at the difference your relationship status can make to your finances.

There are so many ways to be in a relationship. Right now you might be happy just concentrating on yourself. Maybe you’re looking around for a new partner. Some of you will be cohabiting, living with a friend or even a sibling. Maybe you’re married or in a civil partnership. Perhaps you’re separated, divorced or widowed. Most of us are going to cycle through at least a couple of those situations in our lifetime. But each one brings its own financial questions and challenges. So today we’re going to put relationships under the microscope and look at how you can take care of your finances, whichever one you’re in.

I’m joined by three guests with plenty to bring on that. Personal Finance Expert and Blogger at This Girl Talks Money; Ellie Austin-Williams. Hello Ellie.

ELLIE: Hello. Thank you for having me.

PHILIPPA: Next we have Barrister, Mediator, Family Arbitrator and a Spokesperson for the free legal assistance charity Advocate; Paul Infield. Hello Paul.

PAUL: Hello.

PHILIPPA: And lastly, Becky O’Connor is with us; PensionBee’s Director (VP) Public Affairs. Hi Becky.

BECKY: Hello.

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

Now we’re going to be talking about all sorts of relationships today. To focus our minds, I was thinking it would be interesting to ask all of you which of your relationships so far has had the biggest impact on your finances and why. Have you ever thought about it?

ELLIE: Yeah, so I think this is probably the biggest lesson that I’ve learned. Before I met my current partner, I lived with a previous boyfriend and I lent him a significant amount of money. You can probably guess where it’s going. The relationship broke down and I needed to cut ties. So I had to walk away and forget about the few thousand pounds that I had lent him. Luckily I was in a position where my family could help me, but it was a really messy time financially. We had a rental agreement, so I had to move out and pay rent somewhere else whilst also paying rent on the place we shared. But, I always say to people that it was the best thing for my mental health at the time and I wouldn’t change that. Sometimes you’ve gotta just cut the losses and walk away.

PHILIPPA: It just goes to show. That’s why we’re having this conversation. You need to look after yourself, don’t you?

ELLIE: Yeah.

PHILIPPA: Becky?

BECKY: Directly and indirectly there are two relationships, if I may? Directly, my current husband has had the biggest bearing because we’ve bought houses together and we’ve had children together.

PHILIPPA: Does he know you talk about him as your current husband?

BECKY: Whoops. I’ll avoid him listening to this podcast! Indirectly, there was an ex-boyfriend of mine who lived in London. Through being able to stay with him, I was able to do work experience which helped tremendously with my career. So I’d like to give him credit too.

PHILIPPA: Yeah, absolutely. Paul?

ROTIMI: Yes. Organised chaos.

PAUL: Well, it’s got to be my marriage. I’ve been married for 36 years as of last Monday. When I met my wife 40 years ago, she earned more than me. She was a teacher, as she still is. She apparently thought, ‘nice chap, pity he doesn’t earn more’. I’m not sure she still thinks I’m a nice bloke, but I earn more than her now. We’ve had two children who are now grown up, but children, of course, are a considerable expense.

CHALLENGES FACED BY SINGLE PEOPLE

PHILIPPA: Yeah, they are. There’s a lot to talk about here. Should we start at the beginning with leaving home? If we think about our lives sequentially. It’s happening later and later, isn’t it? The Office for National Statistics (ONS) tells us living with parents is now the most common living arrangement right up to the age of 34, which is an amazing thing, isn’t it? A big change. Whenever you do it, it’s a huge step, isn’t it? What do we think people should be thinking about when they do that?

ELLIE: Well, this is something that I talk to a lot of people about regularly. It’s becoming so much more difficult to leave home. Not just buying houses, also the cost of rent. Since the pandemic we’ve seen rental prices go through the absolute roof and there are so many different factors contributing to it. Increasingly people are wanting to come back into the cities. They’re wanting to start their social lives again. They’re wanting and having to go back into the office more, but I do think there are big benefits to that. Some people need to live closer to where their friends are and their place of work. It’s putting a lot of pressure on young people in particular, who have less assets and who typically earn less financially. They’re in a really precarious position and it’s getting harder to save, especially for the amount of money needed to think about buying property these days.

PHILIPPA: Yes, and it’s all the associated costs, isn’t it? It’s not just the rent or the mortgage. It’s the TV licence, it’s the insurance, it’s everything.

BECKY: I think it’s interesting that it’s affecting students now as well. More students are living at home for longer or choosing a university close to home because then they can save by living with their parents. Even the traditional house share’s becoming that bit too unaffordable for some people. Then you think about the associated issues that come with living with your parents for a long time. If you do meet somebody, then do you live with one set of parents? This is another big conversation if you’re trying to save money. It can be a good solution, but obviously, it has associated problems such as living with parents for perhaps longer than you would want to.

PHILIPPA: Sure and for them as well.

BECKY: Totally.

PHILIPPA: I always think about all the things you don’t think about that your parents pay for, like the Netflix subscription. All those little things that you don’t immediately think about like gym memberships and eating out, they’re going to pick up the tab, aren’t they? But if you’re living away, all those bills are for you.

ELLIE: Yeah. It’s really expensive. I think there are things that we don’t necessarily think about as well, like the emotional impact of living at home until you’re a lot older. It can encourage people to make decisions about things like relationships quicker, which is not always something that’s positive. I think that desperation or that desire to get out of your parents’ home can lead people to making decisions about moving in or buying property with a partner, friends or siblings quickly, and not necessarily thinking through all of the potential consequences down the line.

BECKY: Which could actually break the relationships sooner as well, couldn’t it? Because if you’re doing all those things too quickly, then the chance of it actually not surviving and thriving is perhaps greater too.

PHILIPPA: And of course you don’t have to be young, do you? To be single? Definitely not. I mean there’s more than 28 million single people living in the UK right now. And of course all of them are subject to that thing we call the ‘singles tax‘. That horrible reality that living on your own costs you more. So just remind us what sort of things we’re talking about.

BECKY: Well there’s economies of scale to living with one other person or four other people because you save on energy, you save on all the fixed costs of being in a house and living. You save on food costs if you eat together. Preparing a meal for four people’s generally cheaper per person than preparing a meal for one person or buying a ready meal. With Council Tax, there are discounts for single people, but it’s not 50%. It’s not proportionate. It’s partially recognised, but generally speaking, the ‘singles tax’ refers to you not benefiting from the economies of scale of living with more people.

PHILIPPA: Quite a lot of leisure activities are outrageously expensive if you’re single, such as holidays and gym memberships where you’re not getting a couples discount.

ELLIE: Things like car ownership as well. Even with travel, there are railcards that you can get, which give you a benefit, the two person ones. It’s just these little things that, sometimes, you don’t necessarily think about when you’re a couple. But when you’re single, this really has a huge impact on your financial situation. To have a discount makes sense when you’re travelling in a couple. I understand it from an economic perspective, but it doesn’t make it fairer.

PAUL: I agree that there are lots of financial advantages to being in a couple. The one that I think’s worth mentioning is that if you’re single, you still need to think about writing a will because a lot of people don’t write wills. I did a trawl around my place of work some years ago and over half of my fellow barristers in my chambers had not written a will, and I simply asked them whether they thought they weren’t going to die. I wrote my first will when I was 18 because I was travelling away from home and thought it was sensible to leave what little I had to somebody.

PHILIPPA: That was sensible.

PAUL: I think my father bullied me into that, but it’s something that people ought to think about very early.

PHILIPPA: Yeah. I was thinking about the marriage allowance because the tax system directly rewards couples, doesn’t it?

BECKY: So that’s when you can grant a lower earning spouse some of your tax allowance, basically. It depends on the earning level of each person in the couple, but it can be beneficial. That’s probably the most significant tax benefit, but actually, a lot of people don’t use it because they don’t know about it. So it’s there, it’s a benefit of being married, but it perhaps doesn’t make a huge difference between being single and being in a couple, if you’re not going to use it anyway.

PHILIPPA: This is the state encouraging us to get married isn’t it, in a very old fashioned way?

So thinking more positively, what can a single person do to turn that situation on its head? Instead of paying a financial penalty, what can they do to give themselves a financial advantage? We were brainstorming this before the podcast. We came up with a few things. My first one is that you do need to become an expert on your own finances, don’t you?

BECKY: You can embrace it. I was single for a large part of my twenties. I lived in a house share. It was brilliant. I loved my housemates. Obviously, that doesn’t always work out. It can go wrong and I suppose you open yourself up to more risk if you’re constantly moving between house shares with people you don’t necessarily know. But, it can also be great fun. So I would say embrace it, it’s an exciting life phase, particularly if you’re happy to meet lots of new people and go on holiday with strangers sometimes as well, and you’re doing a group booking instead of going completely on your own.

PHILIPPA: Speaking for myself - when I was in my twenties and sporadically single, I know that emotionally I wasn’t planning ahead financially. I was kind of thinking that, at some point I’m gonna couple up and we’ll do that together. I didn’t have agency around thinking about what my goals were. What do I want? What should I be saving for? I certainly didn’t have a pension.

BECKY: Were you thinking of marrying a rich man though?

PHILIPPA: There was no planning going on at all.

ELLIE: It’s so hard now because I do think that a lot of people think like that. Particularly because of the cost of things like property and the ability to borrow. It’s simple - if there are two of you, it’s much more affordable. You can borrow more money to buy a property. There are also these huge benefits to being single and I do sometimes look at my single friends and think, ‘oh my gosh’, you can just get up and go and travel, or you can move abroad or you can explore without having to think about someone else’s job, someone else’s situation and someone else’s finances. You can explore more and use your money how you want to use it rather than how both of you collectively want to to use it. Which I think can be a really good thing.

PHILIPPA: It’s that idea of stretching yourself, even when you’re single. If you can buy property and you know you want to in the long-term, you probably should, shouldn’t you? Because it’ll be yours, you’ll get all of the long-term capital gain and your home security isn’t dependent on your relationship, which is a big one isn’t it? I mean, a lot of people lose their homes when their relationships break up, even if it’s just a rental.

BECKY: Yeah. I don’t think it’s a good idea to wait for somebody before you start thinking about these things, including a pension obviously. Just get on with it to the extent that you can. Obviously, we’ve discussed how it’s harder, or can be harder, because you’re paying more living costs. So you have less spare at the end of every month to help you build up that wealth. But there are also savings to be made. Just go and build as if you’re going to go through life on your own and then if you don’t, that’s great.

ELLIE: I think buddying up with people is a good idea. You don’t have to be in a couple romantically to benefit from sometimes splitting costs. So asking people, if you’re going to something like a weekend away, if you can split the costs, if you can share a ride. There’s sharing hotel rooms as well. Things like hen parties or weddings are expensive to attend as a guest a lot of the time, but if you’ve got another friend or an acquaintance who’s going, who’s single, why not just get a room with two single beds and share the cost?

WHAT TO THINK ABOUT WHEN IN A COUPLE

PHILIPPA: Like singles, couples come in many different forms, don’t they? It might be a romantic relationship, it might be a family member or a friend. Paul, what should people be thinking about as part of a couple? Because there’s a whole load of ways of doing it. People might be married, civil partners, siblings or friends.

PAUL: Well let’s start off by talking about simple cohabitation. Let’s face it - over half the people in Britain now, who live together, are not married or in civil partnerships. They’re cohabiting without the benefit of legal ties. I say the benefit of legal ties because I do actually think there are benefits to the legal ties. There are a lot of people out there who think that they have some legal protection if they’re cohabiting for a period of time.

PHILIPPA: The common law idea? Is it anything? Is it a reality?

PAUL: No, it never has been. Certainly not since 1753. And there’s a controversy about whether it existed before the Marriage Act of 1753. Every now and again I end up with, normally a woman, sitting across my desk talking about common law marriage. She’s been living with a man for say 20 or 30 years. She’s brought up his kid, she’s given up her own career to do that, the children have left home and he has now left, perhaps run off with somebody else, and I have to tell her that she’ll get nothing. That the law doesn’t provide for her.

PHILIPPA: Literally nothing?

PAUL: Literally nothing. If the house is in his name, as it very often is, and the children are gone, she gets nothing.

PHILIPPA: It’s appalling isn’t it?

PAUL: It is appalling.

PHILIPPA: I’m sure most women don’t know.

BECKY: How much do you get if the children are still under 18?

PAUL: You get money from the Child Maintenance Service. But there was a proposal from the Law Commission back in 2005, that after a period of time, you should get some protection - not equivalent to marriage, but some protection. That’s obviously gone on a shelf somewhere in a government department and has remained there because apparently there’s opposition from the church.

PHILIPPA: So if you don’t want to marry and you don’t want to get into a civil partnership, but you’re planning on living with someone, what arrangement should you come to, to protect yourself?

PAUL: You should enter into a cohabitation agreement and they’re very easy to draw up. Most solicitors won’t charge you more than a few hundred pounds to draw one up and it forces you to talk about money, which people often don’t talk about. And of course, if you find yourself in a relationship where the house is in the other’s name, you should be talking about what happens if things go wrong.

ELLIE: I think property’s a really interesting and also complex area when it comes to couples because you’ve got so many variations of what can happen. I think even from a very basic perspective, knowing if you’re buying the property together, and discussing whether you’re buying as tenants in common or as joint tenants is a big decision. Especially if you’re putting in different amounts of money towards the property, then you might want to discuss whether you should look at being tenants in common so that you’re represented proportionally rather than down the middle, which I think a lot of people don’t think about.

PAUL: Should I just explain the difference between those two?

PHILIPPA: Yes.

PAUL: Joint tenancy and tenancy in common have nothing to do with renting, by the way, even though the word tenancy appears in both. A joint tenancy means, effectively, that you both own the whole thing. Though people sometimes prefer to think of it as a 50-50 split. And you can only have two people in a joint tenancy. Tenancy in common is when you own in different proportions. So as you say, if you’ve put in different amounts of money, you can actually set out, normally in a declaration of trust, when you buy the property - who owns what. That’s one way of protecting yourself, but that’s a conversation to have when you’re buying the property.

PHILIPPA: Because the other situation that pops up a lot is, and it’s usually this way round I think, women move into their boyfriend’s flats and even though he may be paying the mortgage for the next 10 or 15 years, if you stay together, you’re paying other bills, aren’t you? So you’re contributing equally to the household budget, but at the end - that flat’s still his.

ELLIE: It’s a really interesting one because I actually see a lot of cases where it’s the other way around. Where it’s a male moving into a female’s property and women asking this question. How do you get a contribution from the person that’s moving in without them developing any right over the property?

BECKY: Would that come back to the cohabitation agreement?

PAUL: Well it does because the way that cases often end up on my desk from formal partners, who formally cohabited, is where the property’s in one person’s name, but the other person has say, contributed to the payment to the mortgage either directly or indirectly by paying other bills and so on. And they say, ‘well I’ve got an interest in that property because of that.’ And that’s why it’s sensible to have that conversation beforehand. There’s one other difference by the way, between joint tenancy and tenancy in common, which perhaps isn’t directly important, but it’s important when one of them dies because under a joint tenancy, there’s a thing called the right of survivorship, which means that the whole property goes to the survivor. Whereas that doesn’t affect tenancy in common. And that may mean that the person who ends up with the property isn’t the person who you might want to end up with the property.

BECKY: And these agreements between the joint tenants and tenants in common apply to non-romantic relationships as well. It’s quite important to point that out to single people.

PHILIPPA: Siblings or friends or whoever. Yeah.

ELLIE: It’s one of those things I remember when we were buying our flat that never actually gets explained and I only know about it because I studied law. It’s basically a box that you have to tick when you’re going through the piles of paperwork to buy a property - whether you want to be joint tenants or tenants in common. Most people, they’ve never had it explained to them.

PAUL: Most good conveyancing solicitors will actually provide you with some information beforehand which explains it. But I have to say, I think most people don’t read it.

ELLIE: No.

PHILIPPA: There’s so much going on when you’re buying a property.

WHAT HAPPENS WHEN YOU SEPARATE?

PHILIPPA: Even if you’re married, we’ve got 42% of marriages ending in divorce. So we mentioned prenuptial agreements. Paul, do they work?

PAUL: Yes.

PHILIPPA: Should you have one?

PAUL: Yes. You should have one for two reasons. Although they’re not binding, the courts have said they’re of magnetic importance. So they’re very influential. And I’ve dealt with a number of cases, with prenups, where the courts have basically said, ‘yes, we’ll go with the prenup.’

BECKY: Can you have a postnuptial agreement?

PAUL: You can have a postnup as well, yes. Sometimes there are cases where you have a prenup and then immediately after the marriage, literally after you sign the register, you sign the postnup because they’re more binding.

The second thing, in some ways, is more important. It forces people to talk about one of those three things that British people in particular find very difficult to talk about, which is money. I’ve actually been involved in the drafting of a prenup, which ended up with a couple not marrying. My advice was that I thought the prenup was so unfair that the courts wouldn’t enforce it. So my client, who was the intended husband, decided not to go ahead with the marriage.

ELLIE: Rather than amend it?

PAUL: Rather than amend it. And actually, the couple really ended up finding out what each other were like courtesy of the intended prenup.

PHILIPPA: We’ve talked a bit about holding onto your financial independence, whatever form of relationship you’re in. If it’s a sibling or a friend, you’re probably going to do that anyway. But if it’s a romantic involvement, and I’ve always done this, and some men haven’t liked it - I’ve always liked the idea of having my own bank account. I’ve been married twice. My ‘current husband’ is perfectly okay with this. I’ve always liked the idea of having my own account. We’ve shared accounts including savings accounts. But, if I want to go and spend on something a bit crazy, I earn money, so I like to go out and spend it without having any sort of conversation about it. It’s generally that sense of, if anything goes wrong, you’ve got your own money. What’s the feeling about that? Do you do that?

ELLIE: Absolutely. We run all of our finances day-to-day from a joint account. But we do also have our own individual accounts and then we also have our own savings accounts, which is also largely tax related as well, because we earn different amounts of money. So, you get different allowances and you want to make the most of your personal allowances. We’re quite unusual, I would guess, in the sense that I actually control most of our finances. So most of our savings are in my name, which is great for me. Less so for my husband. He sometimes does say, ‘I hope you don’t ever think about running away.’ But that’s just how it’s ended up. But I would say we’re pretty good at talking about it.

BECKY: We have one shared account and then I have my own account, but my husband doesn’t have his own account as well. So, I feel a bit bad about that now. It’s just so that I can see my own spending. I filter through what I’m going to spend in my account and then I can keep track because it’s a digital bank account. I can see every time I spend something, it sends me a notification and adds it all up for me.

PHILIPPA: I love that.

BECKY: It’s really good.

PAUL: It is. By the way, my wife and I have never had a joint account.

PHILIPPA: No joint account of any kind?

PAUL: Never.

PHILIPPA: Not even a savings account?

PAUL: Not even a savings account. We each have our own and always have.

ELLIE: I find it so interesting, that kind of dynamic. It’s actually reminded me of something that a lot of people might not think about discussing, which is to do with having children and being on maternity leave. I’ve seen suggestions, which I think are great, suggesting that male partners could top up the pension contributions of the female partner while they’re off work, to make sure they’re not missing out.

PHILIPPA: We’ve talked about this on the podcast before. It’s an excellent idea and pretty much no-one does it, do they? The higher earner, the person who’s still working should be paying pension contributions for the other person and why not?

PAUL: Coming back to your question about pensions. When I went to the bar in 1980, you could do nothing with pensions. And that continued until the Pensions Act 1995, but it really changed in the early 2000s.

PHILIPPA: So whoever had the pension, it was their pension?

PAUL: And you had to ‘offset’, as we call it. So the person who didn’t have the pension got more of the non-pension assets. For example, if there weren’t enough assets. Back in the day, the idea was that the wife got a third and the husband got two thirds. Now, ever since Pension Sharing Orders came in, the courts do divide up the pension. In pension sharing, part of one person’s pension’s literally transferred to the other person and they can invest it normally however they like, sometimes they have to keep it with the same pension provider. What I often find is that women will say to me, ‘I’m prepared to do without a Pension Sharing Order so that I can get more of the house.’ And I always say, ‘no no no no, you’ll really need a pension when you’re 67.’

PHILIPPA: But it’s tricky. I’ve been in this situation myself. If you’re raising small children and you divorce, you’re primarily thinking, ‘I’ve got to have the house’. Because I’m probably going to have my earnings reduced for a bit, I’m going to be single parenting instead with someone else. But I speak from experience and understand, as a former Personal Finance Journalist, that the pension could even be your biggest asset depending on how big it is. But the thinking can be, ‘well, I’ve got time, I’ll deal with that later’. But as you say, women can pay a penalty.

PAUL: Yes, I’m not saying you shouldn’t take the house rather than the pension. All I’m saying is that you need to think about it and not discount the pension.

PHILIPPA: Divorce is not the only reason you might find yourself on your own. If your partner dies, the financial ramifications can be a terrible burden on top of the emotional strain. What should you think about at that point, Paul, if you can?

PAUL: Well, the first thing is to look for the will. If there isn’t a will, then you’re stuck with the rules on intestacy, which if you’re married, normally means that you get most, if not everything. And of course, as I said, if you’ve got a joint tenancy, you get the house automatically. If the will or the intestacy doesn’t leave you enough, then you should talk to a lawyer to make a claim under the Inheritance Provision for Family and Dependants Act 1975, which I’m afraid’s a very long title for a law. What it provides is that the courts can give you reasonable amounts. So, in effect, rewrite the will.

PHILIPPA: That’s great isn’t it?

PAUL: It’s not just spouses who can do that. It’s also cohabitants, former cohabitants, children and so on. There are a range of people who can make claims under that act.

PHILIPPA: I’m going to wrap it up there. There’s so much more we could talk about. It’s always the way on these podcasts, but I think we’ve covered a lot of ground, haven’t we? So, thank you very much everyone.

BECKY: Thank you.

ELLIE: Thank you.

PAUL: Thank you.

PHILIPPA: Dig into the show notes for links to all the resources and organisations we’ve discussed.

A final reminder that everything you’ve heard on this podcast should not be regarded as financial or indeed legal advice. And whenever you invest your capital is at risk.

Next month, we’ll be looking at financial inclusion. How do we level up financial services and make sure that everyone can access them?\ Now looking ahead, we’re also excited to let you know that on Thursday the 4 May, we’ll be recording a special episode of The Pension Confident Podcast in front of a live audience at White City Place in London. We’ll be exploring the best places to save your money from ISAs to pensions with some very special guests. Now, if you’d like to join us, tickets are free and you can get yours by clicking on the Eventbrite link in the episode description. It’s that simple. We’d love to see you there.

Finally, we’d also love you to rate and review us on a podcast app and you can keep track of what we’re up to at /uk/podcast. Thanks for being with us today.

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.

Many of us will navigate through different relationships, and relationship statuses, over the course of our lives. But one relationship status that we’re likely to experience more than once is being single. There are a multitude of reasons as to why people are single, some might simply choose to enjoy living independently while others might be going through a separation or find themselves widowed.

The Office for National Statistics reported that the number of people living alone in the UK has increased by 8.3% over the last 10 years. On top of this, the number of opposite-sex marriages has fallen by 47% since 1972. With the number of single people growing over time, whether that’s people living alone or remaining unmarried, more and more are going to find themselves financially independent.

Whatever the reason may be as to why somebody’s single, what do they need to know about their personal finances in order to gain an advantage and embrace the benefits?

What’s the ‘singles tax’?

Sadly, there’s a financial cost to being single. People in couples may often benefit from dual income whereas single people are often paying a penalty on everyday costs for living alone. The ‘singles tax’ refers to the additional cost single people pay for things like:

• Mortgage or rent payments
• Household outgoings like bills and subscriptions
• Groceries and travel
• Holidays and social activities.

While the cost of living crisis is affecting people all over the UK, it’s been reported that single people are being impacted more than those who are in a couple. This means that all the costs they’re already fronting on their own, like energy bills, eating out and filling the car with petrol, have increased as inflation remains high.

Founder of This Girl Talks Money; Ellie Austin-Williams says: “When you’re single, even things like the cost of travel can have a huge impact on your financial situation. And while it makes sense from an economic perspective, it doesn’t make it any fairer.”

How to beat the ‘singles tax’

The cost of being single’s clear and while it seems unavoidable - we all have to eat, pay our bills and get ourselves to work - there are many ways that single people can gain a financial advantage and overcome these additional costs.

Avoiding extra everyday costs

Make sure you’re taking advantage of any discounts available to you - for example, single people are entitled to a ^{_corporation_tax} discount on Council Tax and, depending on your total household income, you might be missing out on other benefits, too. It’s well worth using a benefits calculator to double check what you’re entitled to.

Shopping and cooking for one person can be difficult, and the alternative of buying pre-prepared meals can be costly. So make the most of your weekly shop by bulk buying certain items and prepping your meals in advance. Spending a few hours each week or month batch cooking your meals has so many benefits - you’ll reduce food waste, save time on cooking during your day and you’ll save money on any spontaneous trips to the shop.

If you enjoy travelling, consider joining group trips as a way to bring the cost of exploring down. There are also benefits to booking things like travel ahead of time - whether that’s train tickets, flights and even airport transfers.

Weekends away, birthday parties, baby showers, weddings - these can all be more costly as a single person. So, if you have events coming up, why not see if you can split the cost of travel, a hotel room and even a gift with someone else?

Getting on the property ladder as a single person

Joining the property ladder can be daunting for people who’re splitting the cost with someone else, let alone those who’re doing it alone. While there’s a huge advantage to two people saving and entering into a mortgage agreement together, it’s entirely possible to purchase a house alone. But there are some key things to think about beforehand.

Firstly, if you’re buying alone, you’ll need a good credit score as you can’t fall back on a partner’s. So, clear any debts you have before applying for a mortgage and ensure you’re making your credit card, and any other payments, on time.

Secondly, consider your employment situation - if you’re self-employed, you’ll need to have a number of years of certified accounts and tax returns to support your mortgage application. There’s a great guide on MoneySuperMarket that can help self-employed people prepare for homeownership. If you’re thinking of moving jobs or industries, especially if it means taking even a slight pay cut, hold off until you’ve got your mortgage. Some lenders will require a number of months in your current employment before you’ll be accepted.

Thirdly, take advantage of any savings schemes available to you whether that’s starting a Lifetime ISA (LISA) to help you save for a deposit (and benefit from a ^{_corporation_tax} bonus from the government!) or looking into shared ownership or shared equity mortgages to help you get on the ladder with a smaller deposit. And finally, use as much professional advice as you can. Speak to a mortgage advisor and use free online tools like mortgage calculators.

Head of Content at PensionBee; Brooke Day says: “I always wanted to buy a house in London, but because I was single, I was kicking the responsibility down the line until I met someone. And one day I thought - this is ridiculous, why am I pinning this moment that I want on waiting for somebody else? I opened a Help to Buy ISA and started to take saving seriously.”

Insurance types to consider for single people

Being single means, while you don’t have a romantic partner that might be financially dependent on you, you also don’t have someone else’s financial stability to fall back on should you need it. For example, if you have an accident, become ill or cannot work for a period of time, having income protection gives you the security of an ongoing income.

There are also benefits to taking out life insurance if you’re single, especially if you have children as the money could be left to them if you were to pass away while they were still financially dependent on you. Or, it can be left to friends or family that might be financially disadvantaged if you were to pass away. This could be your parents or a friend that you were financially tied to - say you owned a property together or, they acted as a guarantor for you when taking out a loan. Taking out life insurance can help ensure you’re covered in circumstances like these as well as giving you peace of mind for the future.

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Embracing financial independence

One of the best advantages of being single when it comes to your finances, is having the freedom to spend, save and invest your money exactly how you want to. Whether you’re deciding how to budget for the month or how to save for your future, you can do so without considering another person’s financial situation. As a single person, you don’t need to consider a partner’s salary, their spending and saving habits or their debts.

While managing your own finances does come with a sense of freedom, as a single person, investing for the future‘s even more important. So make sure your budget allows for stashing money away into emergency savings, and contributing as much as you can afford to your pension.

Founder of This Girl Talks Money; Ellie Austin-Williams says: “[As a single person] you can explore more, you can use your money how you want to use it, rather than how both of you collectively want to to use it. Which I think can be a really good thing.”

While as a single person you won’t benefit from dual income, you do have the opportunity to create additional streams of income. Why not use your single years to start a side hustle? If you own a property and have a spare room, you could rent it out to earn a passive income. Or, while you’re away, list your whole property on Airbnb.

In episode 14 of The Pension Confident Podcast, we discuss the impact your relationship status has on your finances - whether you’re single, cohabiting, separated, divorced, or widowed. Hear from the Founder of This Girl Talks Money; Ellie Austin-Williams, Barrister and Family Mediator; Paul Infield and Director (VP) Public Affairs at PensionBee; Becky O’Connor and listen to the episode, watch our guests in the studio or read the transcript now.

Risk warning

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

Can you afford to retire before you get the State Pension?

If you aren’t sure, or think the answer’s no - but you also think you’ll want or possibly need to retire before you get to State Pension age, then you may be facing what PensionBee’s called a ‘Pre-State Pension Gap’. This refers to the total amount of income you’d need to cover the years you spend not working before you get the State Pension.

As the government looks to increase the State Pension entitlement age to 68 (currently 66 and increasing to 67 from 2028) for today’s workers, the question of whether you’ve enough to retire earlier than the age you’ll get the State Pension may become more pressing.

According to PensionBee research, the ideal retirement age is actually 60. Meanwhile, the ‘healthy life expectancy’ age, up to which people can expect to live in reasonably good health, is 63. Millions of people find that they are forced to give up work earlier than the age at which they’d planned to formally retire, due to the need to care for others or because of their own ill health.

On this basis, we can assume that many people might either want or need to retire before they hit that State Pension age. But as things stand, unfortunately many people aren’t financially set up to do so, because without the State Pension, many simply won’t have enough in private savings to cover their income needs before they get it. Around four in 10 people don’t expect to be able to retire before they get the State Pension, according to our research. This translates to millions of people facing this ‘Pre-State Pension Gap’.

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The extent of this gap will be different for everyone, but by way of example, the extra amount of income that someone retiring at 60 would need before getting the State Pension at 68 (the proposed incoming State Pension age, although we don’t know exactly when this rise will take place yet) is £134,000. That’s assuming they’d like an income of £17,000 a year in retirement. This is the amount the Pensions and Lifetime Savings Association says is about right for someone who’s in a couple and wants what it calls a ‘moderate’ lifestyle in retirement.

However in reality, the actual shortfall in savings that people are likely to face is probably going to be greater than this, as generally speaking, a typical private defined contribution pension pot, for someone who’s been paying in the minimum of 8% under Auto-Enrolment, isn’t going to be enough for a moderate lifestyle in retirement, even if someone retires at State Pension age. So for someone with an average pension pot, the shortfall in savings they would have to fill if they wanted to retire at 60 rather than 68 would be more like £150,000.

If you’re making higher than average contributions to your pension, perhaps with a decent employer matching scheme, and are also on a higher than average salary, this gap might be possible to fill. In fact we worked out that for most people, even on average salaries and with typical contributions and pot sizes, it should still be possible to retire at 67, even if the State Pension age goes up to 68, and to still enjoy a moderate living standard for this extra year.

How to work out your own ‘Pre-State Pension Gap’

Here’s how you can work what your ‘Pre-State Pension Gap’ might be and how much extra you’d need to fill it whilst still meeting your income needs after you receive the State Pension:

1. Estimate how much annual income you’ll need (or want) each year of retirement. You may decide to target a higher amount earlier on in retirement than what you think you’ll need later, but bear in mind that income needs don’t necessarily fall as you get older.
2. Work out when you’d ideally like to retire.
3. Multiply the number of years between your ideal retirement age and State Pension entitlement age to understand the amount of income you’ll need to cover these pre-State Pension years: ‘the Pre-State Pension Gap’.
4. Now consider what you’ve got in your pension pot currently and using a calculator (such as this one) estimate how much you’re likely to have at the time of your desired retirement age.
5. Remember you’ll need some private pension AFTER you reach State Pension age. So find out how much State Pension you’re likely to get based on the number of qualifying years you’ve built up (which you can check here), then work out the difference between what you need for your living costs and what you’ll have from the State Pension. Then you can multiply this by 15 to 20 for the amount of income you’d need (in today’s money) to top up your State Pension right the way through retirement. But bear in mind that you might live even longer, so it could be prudent to budget for even more years than the average life expectancy. You might also be planning to leave some of your pension pot to relatives when you die, so may want to budget for this, too.
6. Remember, when doing your calculations, that the amount of income you can take will depend on whether you’re planning to use income drawdown or buy an annuity - or potentially both at different points in retirement. Using drawdown means your pension can remain invested in the stock market, giving it a chance to continue to grow. Depending on the growth you get, you might find you can take more income than you originally planned through the years. Investment growth while you’re still contributing can also make a big difference to whether you can retire earlier than State Pension age. If you opt for an annuity, this can give more certainty of income and depending on rates as well as how long you live, this could result in a good return on your pension pot. However buying an annuity means you’d then miss out on future investment growth. This is why it can make sense to start retirement using drawdown before taking an annuity later on.
7. Don’t forget to factor in housing costs. Whether you’re still paying off a mortgage or paying rent will also affect whether you can retire early and also how much income you’ll need in retirement.
8. There may be the option to fill the ‘Pre-State Pension Gap’ with some part-time work, even if you’ve technically retired from your main job.
9. Pension Wise‘s an excellent free guidance service from the government’s Money Helper website and if you’re over 50, this can help you work out your options. You might also find it useful to contact an independent financial adviser.

Risk warning

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

According to the latest figures from the Office for National Statistics, five million people are privately renting their home whilst a further 4.2 million are renting in the social sector. That adds up to 9.2 million people living in rental accommodation in the UK. With rents rising at the fastest rate on record, many of us will be feeling the squeeze.

What’s causing rental prices to rise?

The cost of living

From our energy bills to food shops, the cost of living crisis has seen price increases in many sectors. The crisis itself is the result of many global factors including the aftermath of the COVID-19 pandemic and Russia’s invasion of Ukraine. These influences can cause the things we rely on everyday to become more expensive. The rate at which prices rise is known as inflation. UK inflation rose to a record 11.5% in October 2022 and has remained high throughout 2023, sitting at 4.6% in October 2023.

Director (VP) Public Affairs at PensionBee; Becky O’Connor says: “It’s pretty normal now for people to be spending half of their take-home pay on rent.”

If an individual or business is having to spend more money day-to-day, then it may lead them to consider also raising the price of any service they provide. Property is a source of income for many people, so landlords may decide to increase rents to help pay their own rising costs.

In the year to September 2023, the average increase in rent across the country was 11.7%, 5% higher than the rate of inflation at the time. So, although inflation may have been one of the reasons that rental prices rose, it would seem that there were other factors at play.

Increased mortgage rates

In response to rising inflation, the Bank of England has been raising interest rates throughout 2022 and 2023. They remain at a record high of 5.^{_corporation_tax} as of November 2023. The idea behind this is to discourage people from spending, so that service providers are forced to drop their prices, therefore lowering inflation.

Deputy Property Editor at The Times; David Byers says: “Landlords have had these huge mortgage rises and they’re passing those rents on to tenants. This shortage of stock added to that means you’ve got this big increase in rents, particularly in urban areas.”

A higher interest rate means increased costs for high street banks who provide loans to the general public, including mortgages. This means that these costs can get passed on again to anyone who has a mortgage, increasing the rate of interest they have to pay.

The average two-year fixed rate mortgage peaked in July this year at 6.86%. With many landlords struggling to cope with their mortgage increases, the costs are once again being passed down, this time to their tenants.

Supply and demand

Rather than having to deal with higher mortgage repayments, some landlords have decided to sell off their rental properties. This has led to fewer properties being available to let.

The prospect of having to pay more in interest to own a home has also deterred many from buying a property to live in themselves. This means a lot of people who would have been potential buyers are, for now at least, staying in the rental market. On top of this, more and more students are renting while they study, with many having stayed at their parent’s homes during the COVID-19 pandemic.

These factors combined have led to the perfect storm of more people looking to rent with fewer properties available. Property portal; Rightmove says there are now an average of 25 enquiries per home on the rental market, up from just eight in 2019. With more competition for each property, it can lead to some of us having to pay more than we would normally, to outbid other prospective tenants.

What does the future look like?

A worrying issue that can arise from rental prices going up is an increase in homelessness. Most people will think of being homeless as living on the streets, and those numbers are indeed high with around 3,000 people sleeping rough in the UK. However, a large number of homeless people are what’s known as ‘hidden homeless‘. This includes people who are ‘sofa surfing’ for short periods, staying temporarily with family or friends, and those living in temporary accommodation.

Deputy Policy Officer at Shelter; Jenny Lamb says: “There may even be people who are homeless who don’t really consider themselves to be. Some people staying with friends who are thinking, ‘this is a temporary arrangement while I get on my feet. I’ll sort something out’. But those people are technically homeless.”

There’s hope on the horizon if the government’s Renters (Reform) Bill comes into law. Amongst the suggested measures is the abolishment of ‘Section 21 notices’. Currently landlords are allowed to serve you a Section 21 notice to leave a property once a fixed-term tenancy contract ends or at least four months after the start of a periodic tenancy. One of the most controversial parts of these notices is that landlords don’t need to have a reason to evict you using one.

The idea behind the Renters (Reform) Bill is to make the rental system fairer for both landlords and tenants. It also includes the introduction of an independent Ombudsman for private rentals, the right to request a pet in a property and changes to rules around repossession along with other measures. The bill was recently debated in parliament, but some changes are unlikely to take place until at least late 2024, with the removal of Section 21 notices delayed indefinitely until the court system is reformed.

Listen to our episode all about renting on our podcast

Hear us discuss the cost of renting further on The Pension Confident Podcast. In this episode we explore the reasons behind recent price increases, what your rights are as a tenant or a landlord, and what needs to change to improve the housing market. You can listen to episode 22, watch on YouTube, or read the transcript.

Risk warning

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