This article was last updated on 29/03/2024

These days, the odds are pretty good that you’ll live to 100, with more of us than ever predicted to live to a tenth decade. While there are many benefits to living a longer life, the realities of this require a new way of living, working and thinking.

The Office for National Statistics (ONS) estimates that 13.6% of boys and ^{_corporation_tax_small_profits} of girls born in the UK in 2020 are expected to live to at least 100 years of age. This is projected to increase to 20.9% of boys and 27.^{_personal_allowance_rate} of girls born in 2045. As technology improves and healthcare advances, more and more of us will live to be 100 as the norm. So what do you need to do in order to plan your life and finances accordingly?

100 year life finances

Firstly, while there are differences in how to live a 100-year life, one thing remains the same - pension saving is still crucial to a comfortable living in later life.

Roughly speaking, if you’re thinking about how much you’ll need in retirement, the Pension and Lifetime Savings Association (PLSA) estimates a single person will need £13,400 a year to achieve a minimum living standard, £31,700 a year for a moderate lifestyle, and £43,900 a year for a comfortable retirement. For couples, it’s £21,600, £43,900 and £60,600, respectively.

For most people the State Pension will form a large portion of this. In 2023/24 the full new State Pension is £10,600 a year. Currently, both men and women can claim their State Pension from the age of ^{_state_pension_age}, however, this is set to increase to ^{_pension_age_from_2028} by 2028. Of course, the longer you live, the bigger the pot you’ll need to fund each year of retirement.

You can use PensionBee’s pension calculator to work out how much income your pension could generate for you in the future. The retirement planner is completely adjustable so you can add your age, the amount you’re saving and when you’d like to retire, to find out if you’re on track. And if you aren’t, you can adjust your savings goals accordingly.

But we have to be realistic - few of us will be able to save enough for a 34-year retirement. And potentially a decade more, if you choose to retire and access your personal and workplace pensions from the age of 55 (57 by 2028).

In the 100-year life, the three distinct stages of education, work, and retirement are no longer going to fit. Increasingly, to make our money stretch to age 100 we’ll have to, and in some cases want to, learn and work far beyond ^{_state_pension_age}.

Learning and working beyond age ^{_state_pension_age}

Working past age ^{_state_pension_age} might become a necessity for lots of people. But with many of us enjoying increasingly good health it can also be a huge opportunity to live out an exciting new period in our lives, instead of winding down.

We have been conditioned to think about retirement starting around age ^{_state_pension_age} – but what freedom could you enjoy by thinking outside that?

“The government needs to ensure that apprenticeships remain a high-quality training route for people of all ages and stages of their careers.” – John Harding, Global Head of Employment Tax at PwC UK

1. Apprenticeships

Education is not a time-limited pursuit in the 100-year life - living that long will mean we see a huge number of changes and technologies, so much so that it’s likely to become common for people to retrain at many points along the way.

Apprenticeships are no longer just for the young and less experienced. According to official government statistics, of the 288,800 apprenticeship starts in the first three quarters of the 2021/22 academic year, 46% were learners aged 25 and over.

Which employers are in need of apprentices? The three sectors with the most employer incentivised apprenticeship programme claims in June 2022 were:

• Health, Public Services and Care
• Business, Administration and Law
• Engineering and Manufacturing Technologies

The opportunities are hugely varied and there is support for older apprentices from big employers like accountancy firm PwC.

Some good places to start to find out about adult apprenticeships include:

• The government apprenticeship site
• The Find apprenticeships website
• City and Guilds

2. Starting a business later in life

Starting a business can happen at any age. Increasingly, those in their mid-sixties are continuing to work, with many continuing to work for themselves. In April to June 2022, the number of people aged 65 years and over in employment increased by a record 173,000 to almost 1.5 million, which is also a record level. The large majority of this increase included part-time self-employed over 65s, which increased by 76,000 (28.7%).

The rise of part-time self-employed older workers may be caused by many reasons, including the cost of living crisis. But it also highlights some of the flexibility in terms of hours and commitment that starting a business in later life can provide.

Skills built up over a lifetime don’t need to be retired at State Pension age. You can keep your mind and body active by putting your long-standing experience to use in a new venture. The additional income will also help support you in your possible journey towards a 100-year life. By law there is no fixed retirement age and you can continue working after taking your private pension. You can also continue working after the State Pension age.

Just remember, pension income is taxed in the same way as earned income. So anything you earn, or withdraw from your pension, above the personal allowance (which for 2023/24 is £12,570) will be taxed at your marginal rate. Age UK has some helpful tips for ‘olderpreneurs’.

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3. Portfolio living

Living for a 100-year life isn’t just about getting the finances right - it’s also about how we spend our time. With more years to enjoy retirement, our lives can be made up of many different types of work/play activities, simultaneously. Portfolio living is exactly that idea. Not just thinking of yourself in exclusive terms, as a pupil or a worker or a retired person but instead, wearing many hats.

Applied to later life it may mean never choosing to retire, instead switching to part-time, then spending some portion of your time volunteering or doing a hobby, and the rest of your time perhaps looking after the grandkids.

It could mean having a few part-time jobs for variety, or combining learning, working and starting a business - some self-employment, an apprenticeship and a part-time degree studying a personal interest, all at once.Thinking this way can help us make the most of our lives now and at any age, regardless of whether we make it to our 100th birthday.

Final thoughts

• We’re more likely than ever before to live to 100, so we should plan with that in mind.
• Apprenticeships can be a lifelong pursuit, they’re not just for young adults.
• Make portfolio careers and portfolio lives - mix and match what makes you happy.
• Flexibility, as well as a sound financial plan, is your key to a fulfilling 100-year life.

Want to hear more about preparing for a 100-year life? Listen to episode 26 of The Pension Confident Podcast and hear from our guests as they discuss preparing your finances and investing in your human capital. You can also watch the episode on YouTube or read the full transcript.

Laura Miller is a freelance financial journalist.

Risk warning

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

This article was last updated on 10/06/2025

Retirement has long been considered a single event in the milestones of our lives. First, you go to school, then you work and finally, you retire. But things are changing - life expectancy’s increasing, the way in which we work’s evolved, and economic challenges, like the rising cost of living, also play a part in how we’re planning for the future.

What does retirement look like these days?

While there’s no set retirement age in most personal and workplace pensions, you could plan your retirement based on your minimum withdrawal age, which is 55 (rising to 57 by 2028). Or, from when you can claim your State Pension, which is currently 66 years old (rising to 67 by 2028).

Although you’re able to start withdrawing retirement income from 55, this doesn’t mean you have to stop working and retire at that age. You might prefer to continue working and saving, depending on your circumstances. Your working life, along with your health, financial stability, any life goals you have, plus your family and social life, all play an important part when it comes to retirement planning.

Working life

Once you’re able to, you might want to stop working completely and focus on your hobbies and passions, such as travel or family. But there are other options too. If you still feel fit and able to, you might prefer to cut your working hours down to part-time, decide to work remotely or from home and, if you run your own business, you might want to keep working long after the ‘typical’ retirement age.

Financial stability

It can be difficult to know for sure if you have enough money to retire, with so many factors at play. You might have multiple pension pots, property you plan to rent out or sell, and various other forms of savings. To help visualise how far your savings could get you, you can use our Pension Calculator and input a few details such as your age, current pension pot, and the amount you’re contributing to estimate how much retirement income you can expect.

Health and life expectancy

It’s not just about considering the age at which you’d like to retire, it’s also important to consider your health and life expectancy - as this will dictate how long you’ll need your savings to last. Without considering how many years of retirement you might have, you risk taking too much money from your pension pots early on and running out, or not spending enough and having a less enjoyable retirement. Current life expectancy is 79 years for males and 83 years for females - so if, for example, you retire at the current State Pension age of 66, you’ll need to budget for between 13 and 17 years of retirement.

Social life and goals

If you’ve any bucket list goals, the nearer you get to your desired retirement age, the more you’ll want to start thinking about how to achieve them, whether that be dreams of travelling, retiring abroad, re-decorating the house, learning a new skill, or taking up a hobby in retirement. Aside from your bucket list, give a thought to the social and family life you want to have in retirement. This could be volunteering your time to your local community or spending a few days a week taking care of your grandchildren. You might want to save enough so you can stop working altogether, or continue working to maintain a social life and independence well into retirement.

Planning for a happy retirement

It can be daunting when you start thinking about your plan for retirement and what you’ll need to achieve the lifestyle you want. Luckily, the Pensions and Lifetime Savings Association (PLSA) have developed the Retirement Living Standards report which helps you picture what your retirement could look like at three different levels.

The standards, ranging from the minimum of £13,400, to moderate at £31,700, and finally comfortable at £43,900 per year for a single person, show how far three different levels of retirement income can stretch. They’re visualised in real terms by using common goods and services like groceries, transport, holidays and clothing. For couples, the values are slightly higher at £21,600 for the minimum level, £43,900 at a moderate level, and £60,600 per year for a comfortable retirement. For more information on planning for a happy retirement visit our Retirement hub to learn how you could make your retirement dream a reality.

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When should you start saving?

Whether you’re just starting out in your first job, have been working a few years, or are nearing retirement, it’s never too late to start saving into a pension. If you’re employed full-time, it’s likely you’ll be enrolled in a workplace pension thanks to Auto-Enrolment. You’ll also qualify for the basic State Pension if you’ve paid National Insurance contributions (NICs) for at least 10 years. If you have 35 years worth of National Insurance contributions, you’ll qualify for the full new State Pension - you can check your eligibility on the GOV.UK website. To help build your pension savings further, you could consolidate any existing pension pots you have into one or, if you work for yourself, set up a self-employed pension.

Thanks to the joys of compound interest, the earlier you start, the better chance you have for your money to grow. Take a look at some pension projections to get an idea of how much you can save whether you start at 25 or 45.

In episode 11 of The Pension Confident Podcast, Philippa Lamb is joined by Personal Financial Journalist and Money Blogger at Much More With Less; Faith Archer, Head of Media Relations at the PLSA; Mark Smith and Senior Engagement Manager at PensionBee; Priyal Kanabar, as they discuss what a happy retirement looks like to them. Listen watch on YouTube, or read the transcript.

Risk warning

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

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

It’s been a time of great change in the UK, with political events unfolding alongside global economic themes, including high inflation and rising interest rates. There’s an interconnected relationship between inflation and interest rates; often when one is high, the other is low. Both have made headlines in recent months, but it’s important to remember that inflation and interest rates aren’t inherently bad. In moderation, they’re integral to growing the prosperity of a country. The difficulty occurs when one experiences instability and becomes too high or low.

High inflation is an economic ‘fever’ where symptoms include: a loss of appetite to spend money (due to rising prices), and a weakness in currencies. Central banks endeavour to provide the financial stability needed for a healthy, growing economy. So when inflation is running high, central banks may prescribe raising interest rates to lower the levels of inflation. This antidote of raised interest rates doesn’t correct inflation overnight and may have side effects of its own, such as it being more costly for you to borrow money for loans or mortgages, whilst also meaning more competitive rates for cash savers.

The danger of untreated inflation and interest rates is a recession, which economists are speculating is largely inevitable in the current climate. In fact, some news outlets have hypothesised we’re already in a recession. The combination of high energy prices, rising interest rates, and soaring inflation is the perfect recipe for a UK recession. The UK’s central bank, the Bank of England, is attempting to limit the damage of inflation by raising interest rates. Currently the Bank rate is 2.^{_corporation_tax} and the next update is due on 3 November 2022. However, ongoing interest rate rises are likely to dampen economic growth, leaving prominent risks to the UK economic outlook.

Keep reading to find out how markets have performed this month, what a recession is, and how a UK recession may impact your pension balance.

What happened to stock markets?

With economic uncertainty widespread, information has become the most important detail for dubious investors. Fortunately, October marked an opportunity for insights as many companies reported their quarterly earnings halfway through the month. For some, these mid-month trading updates launched an uplift in the value of company shares and stock markets alike, because many companies had better than expected profits, despite the economic turmoil. However, these updates can be a double-edged sword. A weaker outlook for Amazon sparked a turbulent downfall of more than ^_ni_rate in their share price. Even companies that have had a successful October may still be far from their 2021 highs after this year’s continued period of market volatility.

In UK stock markets, the FTSE 250 Index rose by almost 4% in October.

Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by almost 9% in October.

Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by almost 9% in October.

Source: BBC Market Data

In Asian stock markets, the Hang Seng Index fell by over 14% in October.

Source: BBC Market Data

Are we headed for a recession?

Qualities of a healthy economy include: increasing growth rate, high employment levels, and moderate inflation. The opposite, a weak economy, often features a decrease in economic activity, rise in unemployment, and volatile inflation. After two consecutive quarters of an economy contracting, a recession is confirmed.

What’s happening to the UK economy?

Gross domestic product (GDP) is a measure of the size and health of a country’s economy over a period of time. Similar to quarterly reporting conducted by companies, the country will announce similar results for how much they’ve grown or contracted. The table below shows the GDP of the UK economy since the previous recession, demonstrating a decline in the growth rate:

Source: Office for National Statistics.

When was the last UK recession?

In the past 40 years the UK economy has experienced three recessions: the ‘Early 90s Recession’ (lasted five quarters between 1990 and 1991), the ‘Great Recession’ (lasted five quarters between 2008 and 2009), and most recently the ‘COVID-19 Recession’ (lasted only two quarters in 2020). Each occurred due to a unique combination of economic factors.

What does a UK recession mean for my pension?

During a recession, where numerous companies may report low growth, consumer confidence is relatively low and stock markets will usually reflect that. Pensions invested in stock markets may follow this trend downwards while the recession is ongoing. On the other hand, stock markets are usually forward looking, meaning a negative future economic period is already priced into company shares. Overall, it seems that volatility has good cause to continue.

Summary

We’re currently in a bear market (a period of economic decline). The good news is global markets have recovered from every bear market in history. 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 coronavirus pandemic struck markets in 2020.

As a general rule of thumb, when markets are down company shares become more affordable to investors. Putting your pension under a microscope, you’ll see that you probably own a very small percentage of many of the world’s largest and most successful companies, like Apple and Microsoft. When company shares have reduced in value, the same level of contributions can buy more shares. If you’re able to, consider adding to your pension pot to grow your pension in the long term as purchasing shares below their average price could give them more opportunity to grow.

You may find yourself rethinking your pension savings during the cost of living crisis, or worrying about whether you’re making the right choices. PensionBee customers can rest assured knowing that our pension plans are being managed by some of the world’s leading money managers. Again, it’s worth remembering that it’s normal and expected for pensions to go up and down in value 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 November 2022?

Have a question? Get in touch!

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

Risk warning

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

This article was last updated on 12/01/2023

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 11, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Welcome back to The Pension Confident Podcast with me, Philippa Lamb. This month we’ve got a question for you, what does a happy retirement look like?

The good news is that we’re living longer than we used to. When Queen Elizabeth was born in 1926, average life expectancy for women was just 62. Now it’s 83, so most of us can look forward to around 20 years of retirement or even longer. But what is retirement nowadays?

Well, it might be stopping work completely or working part-time, volunteering maybe, or even starting your own business. So, today we’re going to look at visualising your ideal retirement and the financial and lifestyle steps to make it a reality.

We’ve got three guests here today, Financial Journalist and Founder of Much More With Less, Faith Archer.

Hello Faith.

FAITH: Hello.

PHILIPPA: Mark Smith’s in the studio too. He’s Head of Media Relations at the Pensions and Lifetime Savings Association. That’s the PLSA. Hello Mark.

MARK: Hello.

PHILIPPA: And lastly, PensionBee‘s Senior Engagement Manager, Priyal Kanabar.

Priyal spends a lot of her time talking to customers about their ideal retirement, so she’s the perfect person for today’s discussion. Hello Priyal.

PRIYAL: Hello.

PHILIPPA: Before we start, please remember, anything discussed on this podcast shouldn’t be regarded as financial advice and when investing, your capital is at risk.

What could retirement look like?

Now, I know everyone around the table is used to talking to everyone else about their pensions and retirement, but I’m intrigued to know about your own plans. Mark, have you got a vision of your retirement years?

MARK: Yeah, I suppose I have. I’m 35, so hopefully retirement’s still a long way away. But I’ve got this fantasy of retiring early, perhaps going down to part-time work at some point as I get older. Maybe money’s less of a worry as I get older. And getting some space in the country somewhere, I know my partner would love to have some animals. So, just winding down and doing something like that.

PHILIPPA: You’ve got it all worked out. What sort of age are you thinking?

MARK: Oh, as soon as I can afford it.

PHILIPPA: Really?

MARK: Tomorrow if I can afford it. I absolutely can’t afford it tomorrow, but I want to be done working. I want to have the option to choose when I work, not have to work.

PHILIPPA: Okay. I think we’re clear about what Mark wants. Priyal, have you got an idea?

PRIYAL: It’s actually the opposite of Mark. I love working and I can’t see myself not working, especially for around 20 years in retirement. And I want to feel financially secure and I want to spend lots of time with people that I love.

PHILIPPA: This sounds like a packed program, Priyal. That’s all I’m saying, there’s only so many hours in the day! Faith, tell me.

FAITH: I think in some ways I don’t see my retirement as being too different from the life I lead right now. We’ve already moved out to the country, I’m self-employed and I think I’ve got quite a good balance between work and my own time and I enjoy what I do. I’m not sure I want to quit it completely. But the big thing I would love to do more of is travelling. It’s something that my husband and I used to do a lot of pre-kids. And obviously with the pandemic, that’s been reigned in massively. So I think carving out more time, hopefully if we’ve got enough money, to go travelling.

PHILIPPA: I’m on exactly the same page as you about that, working and travelling. Yeah, it’s a lovely combination, isn’t it?

Now look, Priyal, as I said, part of your role at PensionBee is talking to customers about their pensions and their retirement ambitions. What sort of things do they tell you that they want to do?

PRIYAL: Yeah, I’m very lucky. I get to spend a lot of my time talking to our amazing customers and it’s really interesting. A lot of them say they can’t imagine stopping work, but they want to focus on work that they have more passion for. So, Dermott’s a customer in his 40s, and he’s from Zimbabwe. And he’d love to open up a shop where he can sell Zimbabwean food and not run it for a profit, but just to benefit his community by bringing them the food. And another customer, Joe, recently retired early as he was kind of on the cusp of his 60s, and he married his wife at that time. He’s known her for 25 years, they got married and they’ve got lots of travels planned for their retirement.

So, I hear a variety of stories and I think what’s common is that all the customers hope to be very financially secure so that they can do what they dream of doing.

PHILIPPA: Yeah, would it be fair to say, I mean our expectations have grown, haven’t they, as our standards of living have grown over the years? And we don’t just want to get by in later life. I think most of us want to enjoy ourselves, don’t we? We’ve all said it around the table, our plans aren’t going to be that cheap are they?

PRIYAL: I think it varies. In some ways, we’ve got higher expectations and enjoy a higher quality of life. And certainly people of the boomer generation are very lucky because they were able to benefit from house price inflation, wage growth, and defined benefit pensions. Not all of them, but more so than millennials, which is my generation. I’m 31.

Whereas for my generation, we’re worried about the housing crisis and wage stagnation. So I think a lot of us are worried about whether we can even afford to have a retirement.

How to plan and save for that happy retirement

PHILIPPA: Mark. Let’s think about when people can retire. Because, you said you want to retire as soon as you can. Largely there’s no mandatory retirement age for most people nowadays, is there? So it’s kind of different to how it used to be. But there are rules, aren’t there? About when you can claim State Pension, when you can access your personal and workplace pensions. What are they?

MARK: Yeah, that’s right. I think that kind of carriage clock retirement where you work in that one job - the only job you’ve ever had, for the rest of your life - and then you get given a carriage clock and sent on your way with your gold plated final salary pension, those days are probably behind us.

PHILIPPA: That’s my parents’ generation. Yes, a long time ago.

MARK: Mine too. Yeah, you’re right. Most of us won’t be so lucky. But most people, I think, will probably be in a position that think they might be able to afford to retire when they get the State Pension. If they are eligible for it, the State Pension still makes up a really big proportion of most people’s retirement income, when they get to that retirement age. To be eligible to claim the basic State Pension, you’ll need 10 qualifying years of National Insurance contributions and for the full State Pension, you’ll need 35 qualifying years of National Insurance contributions.

PHILIPPA: Just remind us how much it is nowadays?

MARK: The full State Pension is £9,627.80 per year, which is £185.15 per week (2022/23). Following the Autumn Statement on 17 November, this is rising in line with inflation in April 2023 to £10,600 per year, which is £203.85 per week. Depending on what age you are now, you can take it between the ages of 66 and 68 - currently you can take it at 66, by 2028 this will rise to 67, and by 2037 this will rise to 68. But of course, you can flexibly take some of your private pension and your workplace pension when you get to the age of 55 (rising to 57 by 2028).

But there are lots of rules governing when you start accessing that, and then you’re limited to how much you can contribute to your pension afterwards. So you need to think really, really carefully before you start accessing that, because it does sort of change your circumstances quite drastically. But it’s quite common for people to start accessing some of that and moving to part-time, perhaps trying retirement out in a sense, and using that to supplement their income that they’re getting from whatever work they’re doing.

PHILIPPA: I mean Faith, if people are visualising their later life and when they might want to retire, have we got a shopping list of a few things they should be thinking about for sure?

FAITH: When it comes to planning your retirement and how you’re going to fund it, there’s a whole bunch of factors that you have to weigh up.

So, some of it’s when you start your retirement. So what age you’re going to retire, if you’re going to work part-time or if you’re going to stop completely. You’re also thinking about your life expectancy. I don’t know exactly when I’m going to die, but you can certainly kind of estimate how long your money’s going to need to stretch. You can toggle around with what income you can take - because if you take more income earlier rather than later, there’s more chance of running out of it.

And then there’s a whole range of factors that will impact you. Depending on how you take your money in retirement, what the stock market does, what inflation does, if you’re going to have to cope with rising prices, how the tax is going to be taken off your pension. And also thinking later on, whether you want to leave any money to your children.

PHILIPPA: So the whole thing can seem quite overwhelming, there’s quite a lot to think about?

FAITH: Definitely.

PHILIPPA: But handily, Priyal, I’ve been on the PensionBee website. There are a lot of tools and tips on there, aren’t there? Do you want to run us through what’s there?

PRIYAL: Yeah, a first powerful step is using the pension calculator you can use the sliders to put in when you want to retire, at what age, what income you expect to receive, how much you’re currently paying in, and how much you already have. And that can help you work out how much you need to pay in every month. Now, it’s not that the first time you log in you’re going to have the perfect plan, but it’s a process and it’s a habit, and getting into that habit can help you plan and save.

PHILIPPA: It’s a bit of a self education process, isn’t it? So it struck me when I went onto the site, as you said, there’s loads there. There’s the Pension Academy video series, there’s blogs and what struck me was that there’s really basic things on there. So, if you know nothing about pensions, you can go there and just start to understand what this is all about. You don’t need to know anything?

PRIYAL: Exactly.

PHILIPPA: The main thing is to start.

PRIYAL You can find our pension calculator. You just need to type into Google - PensionBee pension calculator. It’s amazing hearing customers say that the transformation, the level of confidence, that they develop through engaging with the content on the website. And we’ve really been focused on creating as simple an experience as we can because we feel that’s the way to help people develop that confidence. Pensions tend to be way too complicated and they really don’t need to be.

PHILIPPA: So Mark, let’s get down to the harder things. Most of us underestimate how much money we’re going to need, don’t we?

MARK: Yeah, I mean, working out how much you need is really, really difficult. When you ask anybody now, I mean how much do you spend in the average year now? I mean, most people won’t be able to answer that question. It’s a really difficult thing to work out.

In recognising this kind of shortcoming, in people being able to understand this stuff, the Pensions and Lifetime Savings Association, a few years ago, developed the Retirement Living Standards. Now when I joined the PLSA, these things were still under construction and I was really excited to get my teeth into them as someone whose job is to communicate complicated, sometimes confusing information about pensions to savers, I really sensed that these would really be able to bring things to life.

PHILIPPA: Yeah, these are really nice because they’re really understandable. Tell everyone how they work.

MARK: So they’re based on goods and services that people would typically buy or use when they’re retired and they’re pitched at three different levels - minimum, moderate and comfortable.

And they allow you to go on and have a look at the types of things that you might be able to enjoy doing at three different income levels. So the annual budget for the minimum standard is £12,800 for a single person, and £19,900 for a couple. And that’s going to include a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. But, on the other hand it’s probably not gonna include the budget to run a car. Now that level through the combination of a full State Pension, and normal Auto Enrolment that you would get in your workplace pension, that level should be very achievable for most people. We projected about three quarters of single employees are likely to achieve that level. Everyone who’s in a couple should be able to reach that because they are likely to share their costs.

PHILIPPA: Okay, so that would be a comfortable minimum. And if people felt they wanted to have a bit more wriggle room to enjoy themselves, what’s the next level up?

MARK: A bit more? So the moderate standard is £23,300 for a single person, and £34,000 for a couple. Now in addition to the minimum lifestyle, that’s gonna provide a little bit more financial security and more flexibility. For example, you could have a two week holiday, perhaps in Europe, and you’re going to be able to eat out a few times a month rather than just once a month. So a bit of a nicer lifestyle, but not shooting the lights out.

Not luxury, by any stretch of the imagination.

PHILIPPA: Yeah. And higher up?

MARK: And higher up, what we call the comfortable retirement living standard. Now I think this is probably really quite luxurious indeed. So you expect to enjoy regular beauty treatments, and theatre trips, and three week holidays to Europe, perhaps twice a year. Now this isn’t something that everybody’s going to want to be able to do in retirement. But at that level, it’s going to be £37,300 for a single person and £54,500 for a couple. So you can already see this is already reaching quite a luxurious standard.

Now, I should point out that these figures, because we want to keep them as universal as possible and as easy to understand as possible, they don’t include housing costs. So at the moment when people retire, still, most people would’ve paid off their mortgage and are likely to own their own home. But of course, societal trends are changing. So if you think you’re going to be renting at that point, you need to take that into account. Of course it’d be impossible for us to say the amount. That varies from county to county. So it’s really difficult for us to include that. So we’ve kept it as simple as we can.

There’s too much complication in pensions communications, I think, as it is. So housing’s kept out of it for now.

PHILIPPA: But useful, to kind of give you a sense of how much money you might need. I mean Priyal, you alluded to this earlier, what are your customers saying about their financial worries? It’s a tricky time. Are people worrying more than they did, that they won’t be able to save enough for retirement?

PRIYAL: Yeah, I mean we already saw high levels of consumer debt amongst people who are approaching retirement age. Another thing that I’m very aware of is the gender pension gap. Women tend to have different working patterns in terms of paid employment and tend to be assigned the main kind of care role.

PHILIPPA: Yeah. Childcare and healthcare. We talked about this on the podcast before actually, the gender pension gap. It’s significant, isn’t it?

PRIYAL: It really is. And while society’s attitudes have moved on and are much more in favour of gender equality, with women being appreciated in the workplace, many policies haven’t moved on. But yes, I’ve spoken to many women who are worried about the time they’ve had outside of employment, doing unpaid care work.

PHILIPPA: And they haven’t been contributing to their pension?

PRIYAL: Yes. And they’re looking at their pension pot when they’re 50. And often when they’re around that age, they also get assigned the care work for elderly relatives. So that has an impact on their pensions. So that’s a concern. Another concern is the cost of living crisis. People who are at an age where they want to make massive contributions into their pensions because they’re approaching retirement, maybe in their late 40s, early 50s and they can’t because of the pressures of the current crisis. And then we also have a growing number of people who can’t afford to buy their own home. So yes, many concerns.

PHILIPPA: I mean Faith, we’ve been talking about various different sorts of pensions. I’m thinking we should probably actually just run through the main ones. Can you give us a translation on what the State Pension is? Not everyone knows what that is. What is it?

FAITH: The State Pension is money you get from the government provided that you’ve made National Insurance contributions which are paid out of your salary, or your income if you’re Self-Employed. You need to rack up a certain number of full years of National Insurance contributions to qualify for a full State Pension. It’s currently 35 years for the full State Pension and 10 years for the basic State Pension. So the good thing about the State Pension is that typically, it increases. It goes up, at the moment, it goes up in line with the triple lock, which is the largest of three figures, 2.5%, inflation and the increase in average earnings. And it’s the highest of those three?

MARK: That’s right. Yeah. The highest of; inflation, wage growth or 2.5%.

PHILIPPA: And our new government is considering this right now?

FAITH: They’re weighing it up. I don’t think it’s in their interest quite yet to scrap the triple lock. But the point is, it goes up with inflation. The other kind of pension you’re going to have is a pension from your workplace, if you’re an employee. Once you earn over £10,000 in the UK, are at least 22 years old, and have not yet reached State Pension age, there’s Auto-Enrolment. That means that you’ll automatically have money towards your retirement savings unless you choose to opt out. That has the major advantage that you’ll get employer contributions and free money from tax relief. If you earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you, but if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf. Opting out of a workplace pension is like turning down a pay rise.

FAITH: Now the workplace pensions, they used to be a ‘final salary’, defined benefit, where the money you got in retirement was related to how many years you’d paid in and what your salary was. And that was really nice.

PHILIPPA: Yeah, those days are long gone.

FAITH: You knew, you were just kind of guaranteed a certain amount of income.

PHILIPPA: You knew what you were gonna get and it was just happening.

FAITH: Yeah. And there are some people that still do benefit from defined benefit pensions, particularly if you work for the public sector. But it’s a much smaller proportion of the population.

PHILIPPA: Very few now.

FAITH: And, the rest of us have what’s called defined contribution pensions. Whether it’s a workplace pension or, whether it’s a private pension. So what you get in retirement depends on what you paid in, and what the stock market has done.

Things to think about when you’ve nearly reached retirement

PHILIPPA: We should talk about compounding shouldn’t we? Because this is the thing that’s not talked about enough. The joys of - the sooner you start and the longer you save, the better it gets. Just explain compound interest and how that plays in.

FAITH: Well, I think everybody’s familiar with the concept of interest. You put £100 in a savings account, maybe you get 1% interest. So at the end of the year, you get £1 added on. Brilliant, there’s your 1% interest. But if you don’t spend that money, if you leave it in the account, at the end of the next year, you don’t just get another £1 added to your £100, you’ll also get interest earned on top of the interest.

PHILIPPA: On your pound?

FAITH: So what it means is, your money goes up, not in a straight diagonal line, but it’s a curve. And the longer you leave it, the more the curve will tip upwards, and the more money you will have amassed.

PHILIPPA: So the younger you start, even if it’s tiny amounts, the better?

FAITH: Absolutely.

PHILIPPA: As time goes on and you get closer and closer to retirement, you’re going to be thinking about how you might start withdrawing from your pension. We’ve talked about this a little bit already. Before you start doing this, if you’re 50 or over, I think this is new, isn’t it, Faith? Your pension provider’s now required to suggest that you have an appointment with an organisation called Pension Wise. Now what is Pension Wise? I know you’ve had one of these meetings, tell us about that.

FAITH: I have, I’m now over 50 and I’ve actually done my Pension Wise appointment.

PHILIPPA: It’s okay Faith, that’s both of us. We can both admit to being over 50.

FAITH: Well, I’m over 50 and proud. I’m excited. I’m getting closer to getting my hands on that pension money.

PHILIPPA: Yeah.

FAITH: All those years of saving. And finally I might get to spend some of it. But it really is a good idea to talk to Pension Wise before you start spending your pension money. It’s a government body. The appointments are completely free. I’m gonna say that again, the appointments are free! And what Pension Wise can do is give you guidance about your pension options.

PHILIPPA: This is a great starting point.

FAITH: It absolutely is. I think mine was about 45 minutes and I was actually really impressed at how clearly they explained what the options were.

PHILIPPA: I mean, they didn’t tell you anything you didn’t already know, I’m assuming? But you thought it was a really good process?

FAITH: I thought it was a really good process, I think they covered a lot of ground during the interview. And I think crucially, one of the reasons I recommend anybody over 50 to have a Pension Wise appointment, is that if you actually put the preparation in beforehand, you are going to get the most out of the interview. If you actually go through the exercise of working out what money you have.

So, track down where your pensions are, where they’re held, in what funds, what the charges are, what else you have in terms of any cash savings, ISAs, investments. Actually look at your budget and work out what you spend now and how much you might like to spend in retirement. So just doing the exercise of sitting down, getting that information together, starting to think about what you would like your retirement to look like. That preparation for the interview is enormously helpful.

PHILIPPA So Mark, I’m gonna put you on the spot now. If you decide you’re ready to start withdrawing from your pension, it can be tricky to work out exactly how you want to do that and how you should do that. Can you just run us through the various ways you can take money out of your pension pot when the time comes?

MARK: Yes, that’s right. So, first and foremost you have to be 55 (57 from 2028) to start withdrawing from your pension. It’s not always advisable to start withdrawing at 55 because, if you want to carry on working and contributing to your pension, then you are limited at that point. So first thing’s first, make sure you actually need the money, or that you actually want to start accessing the money.

PHILIPPA: So, don’t take it just because you can?

MARK: Don’t take it just because you can. Especially to pay off, frivolous - I say frivolous things - but to buy luxuries, don’t take it out and buy a sports car for instance. Just because you really want one.

PHILIPPA: People do though, don’t they?

FAITH: Do they?

MARK: The data says that fewer people do than you’d think.

PHILIPPA: Oh you don’t think so? You read about these things, but is it not true, Faith?

FAITH: I think anybody who’s spent years and years paying their money into a pension does not suddenly change their complete financial personality at 55 and go, whoa, I’m gonna blow the lot!

PHILIPPA: So not even people who’ve been in a workplace scheme where they didn’t really feel they were having anything to do with their pension payments. Because you’re quite detached if you’re a workplace scheme, aren’t you?

FAITH: I think it depends on how much you’ve accrued and I think if your pension is a relatively small amount, £5,000 or £10,000. Then, that might not feel so significant. But anybody who’s built a bigger pension, I’m willing to bet that they think about it slightly more.

PHILIPPA: Okay, so Mark, I’m gonna go back to you because you’ve got more to tell us, haven’t you? So, consider not taking the money out unless you need it at 55.

MARK: It might be that you’re older, you’re closer to retiring and at that point you can take 25% of your pension tax free. It’s a really good idea to pay down things like debt at that point. Paying off your mortgage might be a good way to set yourself up for a decent retirement.

Then with the money that you’ve got left, there’s several ways you can take that. You can either use that money and buy what’s called an annuity. Now, essentially you swap a lump of money for a guaranteed level of income.

PHILIPPA: You can’t change your mind about that though, can you? Once you’ve brought that annuity, that’s done. There’s no going back?

MARK: Yeah, you’ve got the guaranteed amount but it’s irreversible. That’s right. The other way you can access your money is what’s known as drawdown, which is where you leave the money you’ve accumulated in some sort of investment pot. So some of it still remains in the stock market and in other types of investments that your pension fund normally holds.

So it has the potential to grow and you draw down from that flexibly, as much as you need. And the trouble with this strategy is that the amount you get isn’t guaranteed. So it fluctuates with how much you take out at any one time, but also how stock markets perform. So for instance, if you have a bad year where the stock market falls - it’s not unusual for the stock market to fall, 10%, 12%, 15% in some of its leaner years - and suddenly you find yourself having to draw money that’s reduced in value, that hurts your fund even more.

So you have to be in a really comfortable position, I think, to sort of rely on that drawdown strategy.

But I think actually more and more increasingly, the most relevant way for people to access their pension is to do it through a blend of all of these options.

PHILIPPA: Anything to add, Faith?

FAITH: There’s one other option, which is, if you’re in a position where you don’t have to take the 25% tax free lump sum at the beginning, you could instead choose to take payments, take lump sums as and when you need them, where 25% of that amount is tax free. And that sometimes could be useful if somebody’s got the State Pension, maybe they have pensions coming in from other directions, and they’re trying to bring their taxable income down.

MARK: If listeners are thinking, oh gosh, all this sounds incredibly complicated, then believe me, it is. Don’t rush into it and think very carefully before you do it.

PHILIPPA: But the flip side of that is that, you know, the nice thing is, there’s a lot more flexibility in the system now, isn’t there? Maybe not as much as you’d like, Mark, but you know it’s coming. It’s not like the old days where you start work, you get your pension. That’s it. I mean there’s a more flexible way of managing the money you’ve saved isn’t there? Would it be fair to say that, in your retirement?

FAITH: Absolutely. It’s far more flexible and I think it means that there’s much more flexibility in the fact that you don’t necessarily have to stop work on a set date. Because if you wanted to, for example, drop your hours and go part-time after the age of 55, then you could top up your income with either part of your tax free lump sum or using the payments that have part of them as tax free, rather than just buying an annuity which pays you a set amount every year regardless of whether you want all that money or not. You’ve got much more flexibility. And it doesn’t stop you from potentially later in life - because the older you get, the higher annuity payments you will get - if you start it later in life, you’ll get more money each year.

PHILIPPA: Basically, because they know they’re not gonna have to pay you that money for very long?

FAITH: Exactly. But it does mean that while you’re still in a situation where you’re quite comfortable taking stock market risks and you can kind of manage your money, you could drawdown. But then later in life, when you don’t want the hassle anymore, you could hand over money in exchange for a certain income.

MARK: It’s one of those frustrating areas in pensions where the savers are saying ‘What should I do?’ And the answer from the pensions industry is ‘Well, like everything in pensions, it depends.’ So it’s really important that you go and have individual tailored conversations with someone, like Pension Wise, before you do this stuff.

What will retirement look like in the future?

PHILIPPA: We’ve talked a bit about how pensions have changed and are evolving even now, and we need to wrap this up. But I’d like all your thoughts on how you’d like to see that process continue. What else would you like to see in terms of evolutions of the pension system, so that people can match their older years to the kind of flexibility we’re all looking for now? What would you like to see that isn’t there?

FAITH: I think there needs to be more support for the self-employed.

PHILIPPA: Yeah.

FAITH: I don’t know exactly how you’d do it, but I think there’s a massive chunk of the working population that aren’t being compelled to put money into pensions. What we’ve seen is that while for the working population, pension saving has increased and increased and increased after Auto Enrolment, during the same time period, the contributions to pensions by the self-employed have just fallen off a cliff.

PHILIPPA: Yeah, it’s a good point. Mark, any thoughts on what you’d like to see?

MARK: Yeah, for the Pensions Lifetime Savings Association, the question is perfect because we’ve very recently launched a publication which makes five recommendations, five pleas for the government to improve the pension system.

And the first one of those - amazingly, there are no national objectives for what the pension system is trying to achieve - so we want to see the creation of very clear objectives for what the UK pension system actually is. And we think the definitions for those should be around whether it’s adequate for people, whether it’s affordable for the government and whether it’s fair in the way that everybody’s able to get similar outcomes with the same rules that apply for them. We think the State Pension’s too low. I think by international standards and by other G7 economies, it’s lower compared to our counterparts in Europe.

We want to see reform of the State Pension so that we stick with the triple lock, but it needs to gradually increase so that we reach the level of the minimum Retirement Living Standard. We think contributions are still too low via the Automatic Enrolment system.

PHILIPPA: That should be more?

MARK: It should be more. In recent modelling we’ve done, half of people are still gonna retire with less than what we call the ‘target replacement rate‘ - which is the amount they should get.

There are also lots of under pensioned groups, so we’ve already talked about women, but the self-employed, gig economy workers, there are lots of people that are being a little bit let down by the system because they work strange hours, or they might have two jobs or three jobs or four jobs and the system doesn’t really help them.

PHILIPPA: It hasn’t caught up with work with working patterns has it?

MARK: Exactly. So we’re still living in a slightly antiquated, you know, the idea that we’re all working one job and one salary, but it’s just not the case for many, many people. And the other thing is more industry initiatives to help people better understand their pensions.

So, there are actions that pension schemes can take, that employers can take to, to improve pension contributions themselves. You don’t have to put the minimum in if you’re an employer, you might want to make your company more attractive to work for, by having a more attractive policy. And we’ve seen some creative policies around employers paying during periods of parental leave, they continue to pay the pension contributions at the normal salaried rate while that person’s away on parental leave. So there’s some creative ways that can really help people’s pension outcomes in the future. So lots for the government to do, we’ve given them a shopping list of things we’d like to see. But we think if all of these things were adopted, a median earner would see their pension income increase by about £4,000 a year or increase about 25% through the entire life of a pension saving journey. So there are some big outcomes to be achieved, if we can get there.

PHILIPPA: It’s good to know you’re all over making it happen.

MARK: Yeah, we’re banging the drums, certainly.

PHILIPPA: I think we’re going to leave it there. There’s so much more we can talk about, but I think we’ll leave it. Thank you everyone for being here today. It was a great discussion.

If you’d like to find out more about everything we have discussed, then check out the show notes where there are links to lots of useful articles. A final reminder that everything you’ve heard on this podcast should not be regarded as financial advice and whenever you invest your capital is at risk.

Join us again next month when we’ll be joined by Stand Up Comedian, Vix Leyton, and PensionBee’s CMO Jasper Martens for an episode all about translating financial jargon. Dividend yields, annuities, APR, what does it all mean? Do not miss that one. Thanks for listening.

Catch up on episode 10 and listen, watch on YouTube or read the transcript.

Dislaimer: The PLSA’s Retirement Living Standards were updated in January 2023 and the figures in this transcript have been updated to reflect this.

Risk warning

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

This is part of our quarterly plan performance series. Catch up on last quarter’s summary here: How PensionBee’s plans are performing in 2022 (as at Q2).

Investments have dropped significantly in 2022, and while this past quarter started on a more positive note, investor sentiment was a continuation of what we witnessed in the first two quarters of this year. Across the UK, pension balances are still volatile and many savers have experienced substantial falls over the last months. Many savers nearing retirement will have been impacted by falling share and bond prices.

Stock markets have been reacting to an unfolding story of three economic shocks: the war in Ukraine, the UK’s rising inflation rate, and China’s supply chain disruptions.

This year market volatility has veered into bear market territory, where markets are in significant decline for a few months, at least. As investors, it’s concerning, but this period is never permanent. In fact, global markets have recovered from every bear market in history. Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the coronavirus pandemic struck markets in 2020.

Whilst we experience this volatility, please be reminded that bear markets are a typical feature of the capital markets cycle and are eventually always followed by a bull market, a period of sustained growth. Undoubtedly, stock markets will need more time to fully recover from the scale of volatility in global stock markets that have characterised 2022 to the present date.

After months of investments tumbling in a downward trend, July saw marginal growth as markets appeared to stabilise after six deeply unsteady months. In fact, China was the only leading stock market to fall in value. This brief rebound had given investors optimism for further stability and perhaps even growth. However, August reminded us all that we’re still firmly in the grips of a bear market.

In fact, September saw the continuation of the domino effect created by the international energy crisis and the ongoing war in Ukraine. Uncertainty over measures taken by central banks to combat inflation (rising interest rate), along with the energy crisis, has clouded any optimism for an imminent recovery. September saw the Pound Sterling fall by almost 5% against the Euro and by nearly 8% against the US Dollar. This reflects the UK’s weaker economic outlook, as inflation is at 10.1% at the time of writing. In reaction to the rise in inflation, the Bank of England raised interest rates to 3%.

Rising interest rates profoundly impacted fixed income markets, especially bonds. Historically, bonds have been seen as ‘safe assets’, as they thrive on market stability and aim to provide moderate growth for investors, however, bonds and bond-heavy investments have suffered dramatic losses this year.

2021 and 2022 have been the worst years for bonds since 1842 due to inflation, which bonds are ‘allergic’ to. This is because the existing interest rates on bonds currently in the market become much less competitive relative to newer bonds coming onto the market, as the newer bonds are expected to have higher interest rates. Consequently, the prices of the current bonds in the market fall, which is what has now occurred. As a result our Pre-Annuity Plan, like all 10^{_personal_allowance_rate} bond plans, has been impacted.

Pensions are designed to be long-term investments and have historically weathered all short-term financial storms that have been thrown at them. In fact, as you can see from the tables below, PensionBee’s plans performed better than the US and UK main markets this year.

Remember that past performance is not a guide to future performance and this blog has solely been prepared for informational purposes and not with the intent to influence future investment decisions. As with all investments, capital is at risk.

Savers under 50

Sources: Data is taken directly from the money managers or stock market factsheets. Performance is reported gross of fees (based on unit price) and net of irrecoverable withholding tax. Past performance is not an indicator of future performance. Capital at risk. These tables do not take account of any fees that may be levied for a particular investment. Factsheets are available here: /uk/plans. Plan performance may vary slightly from published factsheets due to timing differences and other negligible methodological differences. ^Equity content refers to the amount of exposure each plan has to global stock markets.

Savers over 50

Sources: Data is taken directly from the money managers or stock market factsheets. Performance is reported gross of fees (based on unit price) and net of irrecoverable withholding tax. Past performance is not an indicator of future performance. Capital at risk. These tables do not take account of any fees that may be levied for a particular investment. Factsheets are available here: /uk/plans. Plan performance may vary slightly from published factsheets due to timing differences and other negligible methodological differences. ^^Equity content refers to the amount of exposure each plan has to global stock markets.

An important note of caution: It’s impossible to forecast what will happen from quarter to quarter, and past performance should never be used to predict future performance.

For our customers who are already in retirement and are perhaps thinking about withdrawing all of their pension, you may want to consider only drawing down what you need and keeping a close eye on the markets. Our Investment Pathway guide can help you select a plan based on your personal retirement aims. We’ll continue to keep you regularly updated on what’s happening with your savings and if you have questions about your plan’s performance, this blog, or anything else, you’re welcome to get in touch with our Engagement Team or your BeeKeeper.

This is part of our quarterly plan performance series. Check out the next quarter’s summary here: How PensionBee’s plans are performing in 2022 (as at Q4).

Have a question? Get in touch!

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

Risk warning

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

This article was last updated on 15/04/2024

The landscape of the pensions industry has evolved over the last few years. It’s now been a decade since the introduction of Auto-Enrolment in workplaces across the UK. Though this has seen a big increase in the amount of people who are now saving towards retirement, there’s a glaring portion of society that this doesn’t apply to; the self-employed.

Before the COVID-19 pandemic hit, the self-employment sector was the fastest growing amongst the workforce. According to a recent report from the UK Parliament, more than 16% of working people are self-employed. This essentially means that all of these people are ineligible to be auto-enrolled into a pension scheme, and so if they wish to start saving for retirement, they’re responsible for doing the leg-work themselves.

Setting up a pension can be an extra burden that many of us haven’t factored in. When working for yourself, you may already have enough to worry about; including managing the day-to-day running of your business, registering with HMRC, negotiating your own tax affairs and National Insurance contributions, setting up business insurance, and a myriad of other pieces of admin. So setting up a pot that you can’t access until you retire might be the furthest thing from your mind. However, this does mean that self-employed people are falling behind, with only 16% contributing to a pension related to their work, as opposed to eight in 10 of those eligible for Auto-Enrolment. So what can we do to close this gap?

Why aren’t the self-employed contributing to pensions?

While Auto-Enrolment has seen an increase in workplace pension saving, the opposite trend is apparent for the self-employed who are self-reliant on investing in their own private pensions, with the number dropping from ^{_scot_top_rate} in 1998 to the 16% we see today. Individuals will have their own reasons for not doing so, but what factors could lead to a lack of pension saving in the self-employed?

1. Cost of living

We’re all feeling the pinch at the moment when it comes to our bills and we can’t escape the term ‘cost of living crisis‘, but if you’re self-employed, this may be a particular burden. Three in five businesses cite rising energy prices as a reason for increasing the price of their services. The extra expenses that come with being a business owner can leave little money left over to put into your savings, with a report from the London School of Economics saying that over ^_higher_rate of the self-employed are earning less than ^{_basic_rate_personal_savings_allowance} a month.

2. Keeping money elsewhere

The autonomy of being responsible for your own earnings can also bring an inconsistency in the amount coming in month-to-month. Therefore, if you’re concentrating on having enough savings to access on a ‘rainy day’, the long-term thinking that a pension requires may simply not be in your mindset. The ability to quickly access funds in an ISA might be more attractive to some, or if you’re a property owner, your priority may be paying off your mortgage.

3. Lack of Auto-Enrolment

Unlike those who are classed as contracted employees, if you’re a business owner or a gig worker, there’s currently no legislation in place to say that you must be enrolled in a pension scheme. In the years since Auto-Enrolment was introduced, the amount of employees contributing to pensions has sharply increased, with 79% participating as of 2021, compared to only 47% in 2012. These numbers would suggest that people are less likely to consider saving towards a pension if the responsibility lay solely in their own hands, but if that task’s taken care of by an employer, then they’re more likely than not to opt in. With no such luxury afforded to the self-employed, the pension gap between them and contracted workers has only widened.

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Closing the gap

It may be that the solution to this widening gap is as simple as introducing an Auto-Enrolment scheme for business owners, the self-employed, and gig workers. That’s certainly the opinion of the All Party Parliamentary Group, who in their financial resilience report on UK households recommended that an equivalent of automatically enrolling the self-employed is put in place.

While we wait to see if any extra help does become available, there are a few things you may find helpful to consider if you’re self-employed and feel like you’re falling behind with your pension saving:

1. Set up your own personal pension plan

First and foremost, if you’d like to start contributing to a pension while you’re self employed, you can do so. Some products, such as PensionBee’s self-employed pension give you the option to make flexible contributions, so if you find your income varying from one month to the next, you can increase or decrease the amount you pay in accordingly. There’s no minimum contribution limit, so there’s no pressure to pay in an amount you don’t think you can afford.

2. Consolidate your old pensions

If you’re currently self-employed, but have previously worked for other organisations, then there’s a good chance you may have been enrolled in a pension during those periods of employment. If that’s the case, then combining your old pots into one plan may help you to see exactly how much you’ve previously saved, and what you’ll need to save for the future. The Association of British Insurers (ABI) says that around 1.6 million pension pots are sitting unclaimed, so you may want to check if there are any you’ve lost or forgotten about over time. The government offers a free pension tracing service if you’re unsure.

3. Set up regular contributions

With all the admin that comes with running your own business, it may be that there’s too much on your mind to remember to make a pension contribution every month, or you simply may not have the time to keep up with payments to your scheme. If you’re more confident in the consistency of your earnings, you may consider setting up regular contributions using ‘Easy bank transfer‘. This payment method utilises Open Banking technology to save time, meaning that you don’t have to enter all of your details every time you want to contribute.

4. Consider the tax benefits

Pension contributions are usually classed as a business expense if you’re the Director of a limited company, meaning that you’ll not only receive tax relief on your personal contributions, but also save on corporation tax on payments made directly from your business. Higher and additional rate taxpayers can claim further tax back in their Self-Assessment tax returns on top of the ^{_corporation_tax} that your pension provider will usually claim automatically. Pension contributions also come from your pre-tax income, so this can also mean a reduction in your National Insurance contributions. Therefore saving into a pension as a self-employed person may mean that you take home more of the money you’ve earned.

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 Autumn Statement on 17 November provided a big boost to pensioners, from raising the State Pension to announcing additional cost of living payments. But Chancellor Jeremy Hunt was far from universally generous, heavily targeting wealth saved and invested outside of a pension or ISA.

So, for those trying to avoid the Treasury tax grab, pensions and ISAs have become more attractive places to keep your money growing tax-free. We take a look at some of the need-to-know impacts on our pension savings and pension incomes.

State Pension increases

The State Pension will rise by 10.1% from April 2023, in line with September 2022’s inflation figure. This keeps the ‘triple lock’ on the State Pension that ensures it rises in line with the highest of; earnings, inflation, or 2.5%. The move will cost the Treasury £9 billion.

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 £10,000 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).

It was also announced that pensioners will receive an extra cost of living payment of £300 in the tax year 2023/24. Additionally, Pension Credit, paid to the poorest pensioners to top up their State Pension, will be uprated by 10.1% from April 2023. They’ll also be in line for cost-of-living payments of £900 in 2023/24. Many public sector pensions in payment will also increase by 10.1% in 2023/24.

Dividend allowance cut

In the 2023/24 tax year, the dividend allowance will be reduced from £2,000 to £1,000. It’ll be further halved from tax year 2024/25 down to £500. The dividend tax changes means more people will be paying tax from their investments. It’s also a real blow to business owners, many of whom pay themselves dividends in lieu of salaries. However, it’s not all bad news as there are still ways to save in a tax efficient way, such as into a pension or ISA.

This year (2022/23) a basic rate taxpayer with £20,000 in dividends outside of a pension or ISA will pay £1,575 in tax. A higher rate taxpayer will pay £6,075 in 2022/23.

Assuming dividend tax rates remain the same, in 2023/24, once the £1,000 cut to the dividend allowance comes in, a basic rate taxpayer will pay £1,662.50, and a higher rate taxpayer will pay £6,412.50.

And in the tax year 2024/25, when the dividend allowance drops to just £500, a basic rate taxpayer will pay £1,706.25, and a higher rate taxpayer will pay £6,581.25.

Higher rate tax threshold down

The threshold at which the top rate of tax is payable has been cut from £150,000 to £125,140 from 6 April 2023. This means that anyone who had earnings of £150,000 previously paid 40% on the amount above £125,140 and, from the start of the new tax year they’ll pay 45%, at an additional cost of £1,243 in tax.

Capital gains tax allowance cut

Capital gains tax (CGT) is paid on things like buy-to-let landlords selling their properties, or gains on investments outside of an ISA or pension. While the rate of tax hasn’t changed, the amount you pay tax on has. This is because the capital gains tax free allowance is being cut from its current level of £12,300. For the tax year 2023/24, it’ll be more than halved to £6,000 and then lowered again to £3,000 in 2024/25.

CGT is usually charged at 10% to a basic rate taxpayer for any gain falling within that tax band, and then usually 20% for any gain falling in the higher rate tax bracket.

So a basic rate taxpayer with gains over the current tax-free limit will face an additional cost of £630 in 2023/24, while a higher rate taxpayer will be paying £1,260 more in tax in 2023/24.

Assuming the CGT rates remain the same, in 2024/25, this rises to an extra £930 for a basic rate taxpayer, and £1,860 for a higher rate taxpayer.

Laura Miller is a freelance financial journalist.

Risk warning

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

We’ve written during the first few months of the year about the challenges affecting pensions; inflation, supply chain issues and the ongoing war in Ukraine among other things. This combination of factors is driving down market prices, which you’ve probably seen reflected in the value of your pension pot.

Whilst the current market downturn is unwanted, it’s not completely unexpected. It’s normal for the value of your pension to go down as well as up each day as the markets fluctuate. Naturally, though, it’s most concerning when the markets, and typically the value of your pension too, appear to be trending downwards for a sustained period of time. The most severe kind of market downturn is referred to as a ‘bear market’.

Although the current outlook may continue to be rocky for the near term, there’s also reason to be hopeful that pension balances will rise again. In order to understand why we see the silver lining, it’s helpful to take a step back and see what’s happened to the markets historically. We’ll also describe some of the things you can do to ensure as far as possible your retirement savings are protected.

What happened to the markets in May?

May broadly continues the global market downturn.

In the UK, the FTSE 250 fell just over 2%.

Source: Google

In the US, the S&P 500 fell nearly 5%.

Source: Google

What is a bear market?

When the value of the markets goes down it’s generally a reflection of investors’ more pessimistic sentiment towards current economic conditions, believing that economic growth is slowing. Investors tend to react by protecting more of their money by investing in traditionally ‘safer’ types of assets such as gold and traditionally bonds. As investors sell their company shares this drives down the prices of these stocks and therefore the cumulative value of investment funds such as a private pension.

Although there isn’t a strict definition of when we’re considered to have entered a bear market, one is generally acknowledged when the value of company shares has fallen by at least ^_basic_rate from their most recent high, over a period of at least two months.

You’ve no doubt seen the value of your investments fall in recent times, but you’re probably wondering if this means we are now in a bear market? Let’s take a brief look at the recent performance of some of the main markets.

How big is the current market decline?

The US S&P 500 reached levels very close to that ^_basic_rate threshold on 20 May, down 18.7% this year. In fact, it briefly crossed into bear market territory before ultimately closing up at the end of the day’s trading. However, the US Nasdaq 100 is currently in a bear market, having dropped by 3^{_personal_allowance_rate} from its last high point in November 2021. In China, the SSE Composite Index has fallen 14% since the start of the year. By comparison, the UK’s FTSE 100 has fared better, up about 0.5% overall this year, but some market watchers believe it’s only a matter of time before it sees a sustained bear-like decline too.

The overall picture given of the major global markets is certainly characterised by a number of bear market-like features without signs that recovery is immediately around the corner. Though we’re still in the midst of a market downturn, it’s worth seeing how the current market situation compares to the bear markets of the past.

Bear markets of the past

It’s important to recognise that not all bear markets are as severe as others. At the time of writing, there have been 14 bear markets since the end of WW2 all with varying degrees of duration and fall in values. Let’s take a look at the last three bear markets.

2020

Prior to this year, the most recent bear market was in 2020 when global markets dropped by about 34%, following worries about the effects of the COVID-19 pandemic on the global economy. Whilst this was the fastest decline into a bear market it was also the shortest in history, lasting just 33 days.

2007 - 2009

One of the worst bear markets since WW2 came in 2007 following the housing market crash, when there was a drop of more than 5^{_personal_allowance_rate} over the following 18 months in what came to be known as the Great Recession.

2000 - 2001

Right at the turn of the 20th century, the infamous ‘dot com bubble’ market crash saw around 35% wiped off stock valuations as a bear market took hold between March 2000 and September 2001.

S&P 500 bull and bear markets since 1956

Even in the midst of a sustained market downturn, such as we’re in now, the markets sometimes see an uptick in the value of company shares, in what is known as a bear market rally.

A bear rally was seen in the S&P 500 on 23 May as it jumped 1.8%. Similarly, the DOW grew by 2% which came off the back of seven consecutive weeks of decline in stock market values.

However, such rebounds tend to be short-lived and don’t necessarily signal the end of the bear market. Of course, what everyone wants to know is will the bear market end and, if so, when?

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

How long will the bear market last?

Unfortunately, there’s no defined time when a bear market will end but it’s helpful to know that every bear market in history has eventually come to an end.

The nature of the markets is cyclical, for every bear market we enter, a bull market (characterised by a sustained period of rising market prices), follows. Thankfully, bear markets are typically much shorter-lived than bull markets with an average duration of roughly 10 months and a recovery from bear market values in about 15 months. In contrast, a bull market may last around three years.

A bear market typically ends when market values bottom out and no longer continue to fall. Investors’ sentiment becomes more positive and they take the opportunity to buy company shares at lower prices. If your pension is made up of any company shares your investment will also take advantage of these lower values. As shares are more affordable, your investment is able to buy more and potentially see greater returns during a market recovery.

What should you do during a bear market?

We understand that seeing your investments decrease in value can be unsettling and you may be tempted to withdraw your investments or consider switching to an alternative provider. However, this may not be the best option for the value of your investments.

It’s important to remember that even when the value of an investment drops you only lock in the loss if you actually withdraw from your funds. The performance of our plans has shown the ability to bounce back from previous market downturns. Therefore, we recommend finding ways to allow your pot time to grow again.

For those at or nearing retirement here are a few ways you can help protect your pension income.

Delay or withdraw less from your pension

Delaying or withdrawing less from your pension means that the money you leave invested will have more time, and therefore opportunity, to grow in value again, once markets stabilise.

Use other sources of income

If possible, look to use any other sources of income you may have, particularly those which may not grow as much as your pension in the long term such as personal savings. Utilising other sources of income such as savings or a cash ISA gives any investments you have in stock markets the opportunity to see out the bear market period and recover.

Consider increasing your contributions

If you’re able to, then adding to your pension pot could allow you to grow your pension in the long term. As the value of company shares is lower during a bear market your money is able to buy an increased number of shares at a more affordable rate with the potential for greater returns.

Delay your retirement

Once you retire and start withdrawing from your pension you will be locking in the dip in the value of the money you withdraw. Though retiring later is not what most people hope to do, it’s another option that can allow your retirement savings time to ride out the market decline.

Looking to the past gives us hope for the future

As we’ve explored, bear markets are nothing new, some are deeper and last longer than others, but global markets have recovered from every bear market in history without exception. Moreover, the value of company shares has not only recovered but typically goes on to reach new highs.

Even the biggest market crash since the Great Depression, the 2008 global financial crisis, was followed by the longest period of sustained growth in market history until the coronavirus pandemic struck markets in 2020.

It’s important to keep a long-term view of pension performance. Allowing time for your investments to ride out the temporary economic storms should pay dividends (literally), by the time you come to retire.

So, while the situation may continue to be rocky for now, the past gives us hope for the future.

Key takeaways

• Bear markets are normal and will come to an end
• The average duration of a bear market is 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.
• If possible, avoid withdrawing from your pension to allow time for your investments to recover and grow again.

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 March 2022?

It’s been an unexpected year and this has been reflected in the performance of the stock markets as they’ve responded to uncertainty and change. March gave us a glimmer of hope, but April has resumed a generally weaker economic outlook. So what’s happening?

The usual suspects have continued to impact markets, including: record breaking inflation, supply chain disruption, the effects of coronavirus, labour shortages, an uncertain interest rate trajectory, and the ongoing geopolitical crises. With income levels remaining the same, but everyday costs rising, essentials have become less affordable leading to a cost of living crisis. Less spending affects company profits, meaning investments dip in value. All pensions across the UK are likely to have experienced the impact of this macroeconomic uncertainty.

Fortunately, there’s a precedent of recovery following market falls and pensions are long-term investments. If the global economy grows over time (which historically it has), then your pension should also recover over time.

The current challenges affecting pensions

Let’s have a look at the current events impacting global investments - including pensions.

A big problem currently facing global economies and stock markets is supply chain issues. Russia’s invasion of Ukraine has created a complex list of problems. Countries including the UK have placed sanctions on Russia, which has weakened its economy. However, in retaliation Russia has threatened to stop supplying gas to Europe, which has contributed to rising fuel prices.

In Ukraine millions of people have been displaced and thousands of buildings destroyed, weakening the economy. Beyond their gas supplies and manufacturing, both countries are significant food producers. Together they’re a global supplier of ^{_corporation_tax} of wheat, 3^{_personal_allowance_rate} of barley, and 6^{_personal_allowance_rate} of sunflower oil. Consequently, the price of these goods has also risen as the effect of inflation is seen on household essentials like bread.

Elsewhere we’re seeing the impact of China’s latest shutdown as a result of rising coronavirus cases. Starting in Shanghai these restrictions have been extended to more regions. From iPhones to Tesla cars, many technology companies use China for their manufacturing. China accounts for nearly 3^{_personal_allowance_rate} of all global manufacturing and the shutdown of these regions has real consequences on businesses.

In summary, these global supply chain issues are directly contributing to a weaker outlook for households and businesses and have played a part in the rocky start to the year in stock markets. When you’re a PensionBee customer, your pension is managed by one of the world’s leading money managers: BlackRock, HSBC, Legal & General, or State Street Global Advisors. Each one of our money managers will design and adjust your investments to mitigate the impact of these challenges on your pension and keep your pension on track to continue growing in the long-term.

What happened to the markets in April?

April saw a sharper fall following the brief recovery stock markets made in March.

In the UK, the FTSE 250 fell by over 3%.

Source: Google

In the US, the S&P 500 fell by over 8%.

Source: Google

In China, the SSE Composite fell by nearly 8%.

Source: Google

The price of gold fell less than 1%.

Source: Business Insider

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

Have a question? Get in touch!

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

Risk warning

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

We all want a happy retirement. But for the 1 in 5 working age adults who have a disability, building a pension to get there may require more planning.

Most people build up a retirement income during their careers - through employee pension contributions, paying National Insurance which becomes State Pension credits, and perhaps even making personal pension contributions too. However, a stable career isn’t always a given for those with a disability. In fact, recent ONS data highlights how having a disability doubles your likelihood of being unemployed, when compared to people without disabilities.

Even household costs are higher when sharing a home with someone who has a disability. Few people are familiar with the disability price tag. The disability price tag is the extra costs faced by disabled people and families with disabled children. For instance, those with mobility issues may need to spend more each month on transport or purchasing speciality equipment to make day-to-day life more manageable. Extra costs can quickly add up and when income is already lower this can push some into poverty.

If you’re able to work, there’s support available for finding jobs and negotiating flexible arrangements with your employer to suit your individual needs. If you’re unable to work, there are benefits available to provide you with social care and support you financially. Securing an income - from benefits or employment - can help you live more comfortably.

Whatever your situation, help is out there. In this article we’re going to outline available employment and retirement support for disabled people.

Support for employed disabled people

Under The Equality Act 2010, employers must remove barriers and make reasonable adjustments to support people with disabilities. In practice this could range from an interpreter being present at interviews if you’re deaf or adding ramps to make the workplace more accessible. If a company refuses to comply it’s unlawful discrimination and you could file a claim under the Equality Act.

Disability spans a broad spectrum and presents differently amongst different people. Not all disabilities are physical or permanent. In fact, recent increases in those reporting a disability has been largely driven by a rise in mental health conditions being diagnosed.

The government’s goal is to support one million more disabled people into work between 2017 and 2027 through various initiatives. This is part of their plan to reduce the gap between the employment rates of people with and without disabilities, known as the disability employment gap. Access to Work is a good example of a government programme aimed at supporting disabled people to take up or remain in work. You can apply for:

• Advice about managing your mental health
• Grants for practical support with your work
• Money for communication support at job interviews

Here are four tips on navigating employment as a person with a disability, from before you even start working, through to once you are already in employment:

1. Higher education and apprenticeships may improve opportunities

The disability employment gap was 28% in 2021. In fact, data from the government found the disability employment gap is wider for those with no qualifications. An education may provide employers with additional confidence that candidates are experienced in meeting deadlines or working effectively. Whether it’s studying at university or training for an apprenticeship, qualifications may create a real impact on career outcomes.

Research from the Association of Graduate Careers Advisory Services (AGCAS) found there was only a 7% disability employment gap when comparing university graduates. Apprenticeships can also present an opportunity to earn and learn simultaneously. If you’re studying at a college or university you may have access to a Careers Adviser who can coach you on making the next step into the world of work.

2. Going through application and interview process

Intensive Personalised Employment Support is a government scheme providing a personalised support plan for people with disabilities who need additional help to move into work. You’ll receive assistance in accessing training, identifying skills, searching for jobs and succeeding in interviews - all from a dedicated support worker. You can ask a Work Coach at your local Jobcentre Plus to learn more.

Reasonable adjustments can be requested for an application or interview. This could include different formats of written communication (Braille or large print) or rearranging interviews because of disability-related reasons. Information about your impairment is protected under UK law, so don’t worry about having to reveal any specific details to potential employers when requesting reasonable adjustments.

3. Finding a disability-friendly employer

By law, companies can’t discriminate against candidates over their health conditions. However, not all businesses are disability confident employers. These are employers pledged to supporting their disabled workforce. Choosing an inclusive company comes with many advantages, such as policies in place for tailored support when needed. You can discover disability-friendly employers through sites like Careers with Disabilities. Alternatively you can apply more widely and ask employers what measures they offer.

In 2016 the government launched The Disability Confident campaign, replacing the previous Two Ticks Scheme. The scheme is designed to challenge employers to rethink disability and improve their recruitment and retention of employees with disabilities. Participating companies like PensionBee are assessed and awarded levels (Committed, Employer, or Leader) which can indicate how inclusive your prospective employer is.

4. Exploring alternative ways of working

Before 2020 the UK job market favoured office spaces and inflexible 9 to 5 hours. However, coronavirus restrictions forced employers to rethink their working patterns and many companies still offer work from home or flexible hours. Working fewer contracted hours or predominantly from home could prove less demanding on your disability, while still benefiting from employment perks like paid sick leave.

Instead of arrangements with employers, being your own boss is one way to work flexibly. Finding your side hustle is the first step and your Jobcentre Plus work coach can discuss your options and sources of funding to get you started. The Prince’s Trust’s Enterprise Programme gives workshops and grants funding to entrepreneurs aged between 18 and 30. If you’re paying National Insurance you’ll accrue pension credits towards your State Pension.

Retirement income for disabled people

You may be eligible for benefits like Pension Credit you’ll need to:

• Less than ^{_money_purchase_annual_allowance} in savings*
• Live in England, Scotland, or Wales
• Reached State Pension age**
• Every ^{_higher_rate_personal_savings_allowance} over ^{_money_purchase_annual_allowance} is counted as £1 a week income. * However, since 2019 if you’re cohabiting with your partner this could impact your ability to qualify for Pension Credit. Both of you will need to have reached Pension Credit qualifying age to apply.*

There are two parts to Pension Credit: Guarantee Credit and Savings Credit.

• Guarantee Credit is available to everyone of State Pension age, on a low-income. You can work out your State Pension age by using the government’s State Pension calculator. If you do qualify your income will be topped up to £182.60 per week for individuals and £278.70 per week for couples in _current_tax_year_yyyy_yy.
• Savings Credit is an extra income available to those who have saved some money towards their retirement, however only those who reached retirement age before 6 April 2016 can claim Savings Credit. If you do qualify you’ll receive an extra £14.48 per week for individuals and £16.20 per week for couples.

But Pension Credit isn’t only an income boost, it can give you access to other benefits too. These can include:

• Cold weather payment of £25 if temperature drops to or goes below 0°C for seven days in a row
• Exemption from paying Council Tax (if you live alone)
• Free dentistry on the NHS, together with subsidies towards glasses and transport if you need to go to hospital
• Homeowners could qualify for help with surplus charges such as ground rent, while private tenants could get their rent covered by Housing Benefit
• Those aged 75 and over are exempt from having to pay for their TV licence if they receive Pension Credit

Once you’ve checked that you are of State Pension age you should call the Pension Credit claim line on 0800 99 1234. Or find out more information at gov.uk.

Are you struggling to make sense of your options?

Figuring out your financial situation isn’t always straightforward. If you’re unsure about your options please seek support from a trusted agency or charity:

• Contact Citizens Advice to talk through circumstances
• Message your local council to get assistance
• Talk to someone you trust

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.

Investments have dropped in 2022. A cost of living crisis in the UK, an ongoing war in Ukraine, international supply chain issues due to shutdowns in China, on top of rising interest rate expectations, have created the perfect storm for market volatility. And your pension, like all investments, has not escaped these global shocks and will likely have experienced some extreme knocks. Taking all these elements into consideration, we examine what’s been happening to UK pensions as global investment markets plummet.

A rocky start to the year

The current economic downturn began in January this year, when both the FTSE 250 in the UK and the S&P 500 in the US fell by around 9%, sparking global concerns over investments. February saw many global stock markets continue to fall as more investments were shifted into traditionally more stable assets such as gold and government bonds. At last stock markets appeared to stabilise in March, with growth in some sectors giving rise to some cautious optimism about how the rest of the year might progress. This hope was quickly extinguished as poor market performance resumed in April. The FTSE 250 fell by over 3% and the S&P 500 fell by over 8%. These drastic declines in markets signalled that the volatility we had seen at the beginning of this year would likely persist for some time. Economic forecasts for the next six to 12 months appear dreary. At time of writing, the S&P 500 is down almost 17% year-to-date.

It’s important to understand that it’s normal for the value of your pension to go up and down over time, and that periods of extreme volatility are common over history, as witnessed in 1987, 1999, 2008 and 2020. Despite this, over the past five years the S&P 500 has seen growth of approximately 68%. At PensionBee most of our plans are diversified, meaning they’re invested across different countries and/or asset types (such as company shares, property and bonds). But when global markets are down across the world, pension balances will be impacted.

The impact on pensions in the UK

Across the UK, pension balances are volatile and many have experienced substantial falls over the last few months. Many savers nearing retirement will have been impacted by falling share and bond prices. We’ve selected a range of at or nearing retirement plans from a few different providers, to compare the performance of similar plans across the market. As you can see all plans have been negatively impacted by recent market conditions.

Performance of PensionBee’s 4Plus Plan over the past six months:

Source: Morningstar

Performance of Aegon’s Balanced Tracker Annuity Target ARC 2023 Pension Fund over the past six months:

Source: Morningstar

Performance of Aviva’s My Future Focus Annuity S2 Pension over the past six months:

Source: Morningstar

Performance of Scottish Widows’ Pension Portfolio Four Series 2 Pension Fund over the past six months:

Source: Morningstar

Performance of PensionBee’s Tailored plan (Vintage 2025-27) over the past six months:

Source: Morningstar

How to approach pension saving in times of market volatility

It’s hard to know in times like this if you’re making smart choices with your money. When problems arise it’s a natural instinct to want to take action to prevent further damage or loss. You may find yourself rethinking your pension savings during the cost of living crisis, or worrying about whether you’re making the right choices during the market volatility we’re facing.

But when investments are struggling to grow against the backdrop of persistent market losses, what can you do? The Financial Conduct Authority (FCA) is the regulator for over 50,000 financial services firms and financial markets in the UK. In their own market volatility messaging, they outlined three important considerations for when you’re making decisions about what to do with your investments:

1. Withdrawing your money won’t recover losses

When markets are considerably down many people are tempted to withdraw from their investments under the assumption their money is safer in their pockets than in stock markets. Or even move their pension because they believe their provider is to blame for the losses caused by market volatility. However, withdrawing your money won’t recover losses, in fact all withdrawing does is guarantee your investment loss.

2. Money invested may see recovering markets

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

3. Access your rainy day savings before realising losses

Finally, if you’re in need of money in the short to medium term then consider withdrawing from cash savings before accessing your investments (like pensions). Having a rainy day fund is really valuable as it’s better to spend from cash savings than realising losses on your investments.

What if you have further questions about your pension?

We understand that you may have concerns about your pension during times of economic uncertainty. So we’re here to help and answer any questions you might have.

You can contact your BeeKeeper either by:

• Emailing them (find their details in your BeeHive)
• Calling 020 3457 8444 (Mon-Fri 9:30am-5pm)

You can also contact our dedicated engagement team on engagement@pensionbee.com.

If you are over the age of 50, you may also benefit from a free Pension Wise appointment. You can book your appointment here.

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 Office for National Statistics reported that the price of consumer goods are increasing at the highest rate in almost 30 years. Similarly, the BBC reported that your food bill may increase by £271 this year because of inflation. In an ideal world (and economy) both our incomes and our outgoing expenses would rise in pace with each other. For example if the price of bread increased by 2% (along with our items in our shopping baskets) we wouldn’t necessarily notice it as much as our salary would have seen a similar growth that year.

However, when expenses overtake incomes we experience a cost of living crisis.

Along with the soaring inflation households in the UK are feeling the impact of rising interest rates, geopolitical tensions, supply chain disruption, labour shortages and the lasting effects of the coronavirus pandemic. All of these factors have contributed to where we are now.

What is the cost of living crisis? And why is this happening?

Simply put, the cost of living crisis is a direct result of income levels remaining the same while everyday costs have risen. This has meant that essentials have become less affordable to households here in the UK. The rising costs of shopping over the last year, is as a result of soaring inflation. Inflation is the rate at which the cost of things goes up each year.

The Government can measure inflation, using the Consumer Prices Index. They do this by comparing prices of basic goods and services each year (everything from bread to energy bills). From this, they can understand the change in household costs. The Bank of England sets a target of 2% for annual inflation. It’s important for inflation to be stable: both for businesses to set their prices and consumers to plan their spending.

March saw inflation hit the highest levels since 1992, and it continues to hover at around 7%. Between energy price hikes, geopolitical tensions throughout Europe, and recovering from a global pandemic - it’s unsurprising that inflation keeps rising. In response the Chancellor, Rishi Sunak, introduced policies to ease some of the pressure in the Spring Budget. Many people feel these measures haven’t gone far enough as the cost of living crisis continues to bite.

If you were alive in the early 90s, today’s economic outlook will be familiar. Inflation peaked at 9.5% in 1990 before gradually decreasing to 3.7% in 1992. During these years Prime Minister Margaret Thatcher resigned, a recession was announced, and people rioted over tax rates. 20 years later, we experienced another financial crisis. While the ‘2008 crash‘ had different causes, the outcomes remained similar. Then in 2020 the coronavirus pandemic triggered another recession for the UK economy.

Currently, we’re facing the risk of yet another recession if inflation doesn’t improve. However, there is good news. The Office for Budget Responsibility anticipates that inflation will decrease during 2023. While this doesn’t stop us feeling the pinch today, it also doesn’t stop us from planning for the future. There’s a precedent of recovery following market falls and pensions are long-term investments. If the global economy grows over time (which historically it has), then your pension should also recover over time.

So how does inflation affect pensions?

How does the current cost of living crisis impact your pension pot?

High levels of inflation impact pensions; both in the present and future.

The cost of living crisis has a ‘trickle up’ effect on our economy. When people have less money to spend, companies begin reporting losses as revenues plummet. For the first time in a decade Netflix lost subscribers, leading to almost a ^_basic_rate fall in their share price. This isn’t surprising when every money guide out there advises cutting non-essential spending (such as subscriptions) then starting an emergency fund when we’re struggling financially.

Yet while we might make gains from reducing our outgoings as individuals, we may collectively feel the impact as savers with investments in the stock market, through Stocks & Shares ISAs and defined contribution pensions. If you had invested £100 in Netflix last year, the recent drop in share price would reduce your balance to £80. Fortunately, most investments are spread across many shares and different asset classes so we’re not usually reliant on a single company’s success for our money to grow. This is known as diversification.

Unfortunately, the cost of living crisis we’re currently facing has a long reach. And even diversified investments are experiencing slower growth, and losses in some cases. This combination of high inflation and a stagnant economy is known as ‘stagflation’. Navigating your finances safely through this turbulent period is tricky. However, there are a few simple steps that you can take now to boost your pension - without spending a penny.

1. Make workplace pension contributions

Although there’s legislation in place for employers to automatically enrol employees into workplace pensions, you can still opt-out. However, while regaining a small percentage of your gross salary each month may seem appealing it can be costly in the long run, as you’ll lose a ^{_corporation_tax} tax top up on your contributions from the government and a minimum employer contribution of 3% of your gross salary.

Yet the biggest benefit you’ll lose from opting out is compound interest. When your interest is added back to the original amount it begins a ‘snowballing effect’. Because it works by accumulating over time, compound interest can turn a small pension pot into a significant amount when left untouched for a long period of time. Opting out of your workplace pension can save you pounds now, only to cost you thousands in potential gains later - when you’re reliant on your retirement income to live.

2. Combine your pension pots

PensionBee CEO, Romi Savova, commented: simple steps such as combining any existing pension savings into one pot can have a noticeable effect on a savers’ eventual retirement income. Whilst this avoids savers losing out on any hard-earned savings, it also means that they only have to pay one set of fees, rather than multiple fees for various pots, which can erode a pension’s value over time.

If you’re already following step one, great! But opting in to all your workplace pensions could translate into many scattered pension pots as you switch jobs over the course of your working life. Defined contribution pensions (the most common type of workplace pension) are often managed and as a result have management fees. At first glance these fees may appear small but high charges can erode the value of your pension over time, if left unchecked.

You can find out where your old workplace pensions are using the Government’s free Pension Tracing Service, or by contacting your previous employer directly. Knowing the name of your pension provider and the policy number is key to consolidating your pensions.

3. Let your savings grow

It can be hard to know if you’re making the right decisions. And sometimes it’s tempting to take action for the sake of feeling in control again. An important thing to remember is that long-term investments don’t benefit from lots of short-term changes such as switching plans repeatedly. Financial products like pensions are designed for the long-term and thankfully aren’t reliant on investments consistently returning profits year on year.

Once you’ve committed to consolidating your pensions you should feel confident in your decision. While it can be difficult, try not to worry about short-term fluctuations as the value of your pension will ultimately be shaped by decades of stock market ups and downs. Instead, being conscious of your target retirement income and slowly building up a pension to support you in later life is a healthy habit you can start 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. This information should not be regarded as financial advice.

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

PHILIPPA: Welcome back to PensionBee’s Pension Confident Podcast. I’m Philippa Lamb. Now, when it comes to being socially responsible, you might be recycling or doing meat-free Mondays, maybe taking a train instead of a plane. And more and more of us are investing in line with our beliefs too. We can already choose to put our money into companies or sectors we support, like say green energy. And of course, we can avoid sectors we don’t want to support. You can make those choices about your pension too. And today, we’re going to be investigating an approach you may not have considered before and that’s Shariah investing. It’s a socially responsible option which complies with goals and the values of the Shariah, or Islamic law that Muslims live by, but it’s open to everyone. So what are Shariah investments? How do they work, and how could a Shariah pension be right for you, even if you’re not Muslim?

Music starts

More than 3.3 million Muslims live in the UK, and to put that in context, that’s more people than the whole population of Wales. And while most non-Muslims know something about Islam, Shariah investment may be a new idea. So whether you’re familiar with Islamic finance, or completely new to it, this episode is all about how it works and why it’s worth knowing about. Globally, Shariah investing is on the rise. Recent data from Reuters estimated that the global market for Shariah funds has ballooned by more than 300% in the last decade alone. So there is growing demand for Islamic investments, but how are they different from other investments? I’ve got two experts with me to answer that. Ibrahim Khan is a former lawyer, and he’s Co-founder of Islamic Finance Guru, that’s an investment and personal finance platform, all about helping Muslims make smart decisions with their money. And the business and investing magazine Forbes recently rated him in their 30 under 30 list of entrepreneurs to watch. Ibrahim, welcome to the podcast. Quite an accolade!

IBRAHIM: Hi, it’s a pleasure to be here! Yeah, it was great. It was great to be on the list.

PHILIPPA: Surprised?

IBRAHIM: Yeah, it was - it was great to see that they, you know, were looking at people, not just from the mainstream finance world. And I think that’s fantastic.

PHILIPPA: Also, here with us, we have PensionBee’s own Head of Product, Martin Parzonka. He’s here to give us his take on Shariah investing, and also to tell us about PensionBee’s own Shariah pension. Welcome back, Martin.

MARTIN: Thank you Philippa, good to be here. Excited to get into it.

PHILIPPA: Now, before we get going, the usual disclaimer. Anything discussed on this podcast should not be regarded as financial advice and when you’re investing, your capital is at risk. We’re talking about Shariah investments and how they fit into the ethical investment landscape. So I’m going to put our guests on the spot, I’m going to ask them what changes they’ve made in their own lives to be more socially responsible. Martin?

MARTIN: Well, we were laughing about this before we got into the studio but I drink/eat a thing called Huel, which is a powdered food.

PHILIPPA: Other powdered foods are available.

MARTIN: Mix it with water and it hits all the nutrient profiles that you need. You know, it reduces meat consumption. And that’s important.

PHILIPPA: Yeah, now the breakfast choice, Ibrahim and I were less convinced. I’ve got to say, less keen on that. But -

IBRAHIM: That’s the, you know, that Huel I’m sure is the substance that, you know, Neo was getting pumped on it in The Matrix.

PHILIPPA: Yeah, and he was happy with that. That’s the scary thing. How about you? I mean, socially responsible choices, what are you doing?

IBRAHIM: So I drive a Toyota Prius, which is a hybrid, which is fine, there’s loads of them. But then the thing that takes it to the next level, is that if you drive below 28 miles an hour, it uses just the electricity. So next time you’re stuck behind a Toyota Prius driver driving slowly, you should understand that he’s doing it for this reason.

PHILIPPA: And feel good about yourself too -

IBRAHIM: And feel good about yourself, you’ll be a little bit late, but it’s alright.

MARTIN: It’s also safer.

IBRAHIM: It’s safer, it’s safer for the environment. And you know, the guy’s saving money.

Halal and haram investments

PHILIPPA: I’m not sure you’re selling the idea, really, but point taken, point taken. Shall we start with the basics Ibrahim, what exactly is Shariah investing?

IBRAHIM: So Shariah investing is really just looking at the two words. It’s, you know, Shariah-compliant, so it’s compliant with Islamic law. What that actually means is you look at the Quran and the sayings of the Prophet Muhammad, peace be upon him. And then investing, is just investing in line with those rules and regulations. So in a nutshell, that looks like not investing in things that, you know, generate interest, or gambling, or investing in alcohol or pork. These will be like the really obvious ones, and then there’s some others that are under the surface and a bit more technical.

PHILIPPA: Okay. So Shariah compliant investments, they have different criteria, completely different criteria from, say, fossil fuel free investments, but you would still classify them as socially responsible.

IBRAHIM: I think there’s a really strong overlap between the two. But there is still a difference.

PHILIPPA: So yeah, so the crossover is, I mean, it’s directly excluding certain sorts of companies, and also its business practices as well, isn’t it?

IBRAHIM: Yeah, absolutely. So if, you know, a company is, I don’t know, involved in, let’s say, the war in supporting Russia in some way, shape or form. That could be, you know, a clear question mark.

PHILIPPA: So there’s judgments involved?

IBRAHIM: 100%. So there’s two types of mindsets that you approach when you’re analysing, you know, is this Shariah-compliant or not? There’s a quantitative side, you know, looking at the debt levels and looking at the amount of impermissible income that’s coming into a particular stock. And then there’s a qualitative side, you know, then you’re just eyeballing and it’s a moral question.

PHILIPPA: Yeah. You talk about debt. So yes, companies that are highly leveraged. That’s an issue.

IBRAHIM: That’s an issue. Definitely. So the most that you can be is 33%. Debt to total assets.

PHILIPPA: So there’s a hard number there?

IBRAHIM: Exactly. So if you go over that, you’re in trouble.

PHILIPPA: Do you want to fill us in on some of the terminology?

IBRAHIM: Yeah, for sure. So a “Riba“ is the term that is to do with interest essentially, and that’s not allowed. And then you’ve got “Gharar“, which is uncertainty or doubt and that would rule out certain areas such as, as I said, derivatives or lots of types of insurance will not be allowed. And then you’ve got “Maysir”, which is gambling. So you know, Bet365 cannot be in a Shariah compliant portfolio. And then you’ve got a few other technical things as well.

PHILIPPA: Okay. So they will be described as haram?

IBRAHIM: They will be haram.

PHILIPPA: Prohibited.

IBRAHIM: That’s the one.

PHILIPPA: What about Halal investments, Martin? The opposite end?

MARTIN: Well it’s basically everything else that Ibrahim hasn’t covered there. It’s the opposite of all that. And a lot of companies are actually Shariah compliant without even realising it. So Ibrahim mentioned, there’s some - there’s a lot of overlap with fossil fuel investing, and the Shariah fund, that we have at PensionBee, for example. And you’ll find that if you look at the underlying investments - that a lot of that is tech companies, right? Because they’re not ones that are, you’re not earning interest on them. They’re ones that may not be entirely leveraged. It’s interesting, the comment there about looking at them and understanding their business practices, though. So Netflix is tech, right? Inverted commas, but then the content they serve up - questionable. You look at platforms like say Facebook maybe, might be also questionable, because you know, are they a platform? Are they a publisher? It’s an ongoing discussion right now. But in the main, you will find that there is that overlap, and a lot of tech companies do form part of a Shariah compliant portfolio.

PHILIPPA: It’s subtle, isn’t it?

MARTIN: Yeah, it is. It is.

PHILIPPA: And it’s topical. I was reading the Financial Times a couple of weeks ago, the trade union that represents Uber drivers. It was so interesting to me that they were threatening legal action against Uber because their pension scheme was not Shariah compliant.

IBRAHIM: Yeah, I love a bit of a fisticuff when it comes to the pension world, because you get so few of them. So Uber, yeah, is being threatened with legal action by a union of Uber drivers, which I think is - it’s great, right, that people are standing up for their rights. You know, they actually got in touch with us and asked us to publicise and promote this, because again, there’s two sides of this one is the, you know, the legal action, which is to make sure that Uber drivers have the possibility of going for a Shariah option, which they don’t have right now. But then the other bit where they say, “Look, can you help us out a bit?” is educating Uber drivers about the point of pensions in the first place. And, you know, if you’ve never had a Shariah compliant option ever available to you in your life, why would you even start thinking about that? You know, it’s a boring subject. And, you know, you kind of have to prompt people, and there’s a big education piece as well.

PHILIPPA: I think the majority of their drivers are Muslim.

IBRAHIM: Yeah.

PHILIPPA: 75%, apparently, which I thought was fascinating that, you know, they hadn’t actually thought about that when they came up with their pension scheme. Were you surprised to hear that?

MARTIN: Honestly, I wasn’t. I think the pension industry, the finance industry does come from a place of, you know, Anglo Saxon, to be honest, and so doesn’t consider the entire community when these products are devised, right? I’m also glad that this is happening. It really shakes up the industry and says, “Hey, guys, like, there’s an underserved community here. Why are we being so sort of blinkered about it?”

PHILIPPA: Yeah, it’s stretching inclusivity in ways that finance hadn’t thought about before, isn’t it? I mean, in fairness, you were telling me that Uber - they’re not objecting to this. They just hadn’t thought about it.

IBRAHIM: Yeah, I think that’s a great signal for businesses just across - well, for Muslims vis-a-vis businesses across the UK, because Uber is pretty litigious, right? They, you know -

PHILIPPA: They have their issues.

IBRAHIM: They fight things to the Supreme Court and yet on this point, they’ve said, “Look, the law is very clear here. And we’re going to get this sorted, just give us a few months.” So, you know, that as a signal I think is fantastic.

PHILIPPA: Head’s up for everyone.

IBRAHIM: Yeah, exactly.

PHILIPPA: It should be a heads up for all employers, shouldn’t it?

MARTIN: Yeah, I think some are a little bit passive. Honestly, they are a bit lazy about it. Like I’m reading the pension firms comments back, it’s like “I try to do the right thing”. But everyone’s like, did you really? Did you really look at this? Did you - do you talk to your customers?

IBRAHIM: They’re not evil, right?

PHILIPPA: Absolutely.

IBRAHIM: They’re just a bit slow. And you know, perhaps not thinking about the wider picture. Yeah.

PHILIPPA: Yeah. Well look, now we’ve got the basic idea. Can you tell us a bit about the origins of Shariah?

IBRAHIM: Yeah, Shariah or Shariah pension?

PHILIPPA: Shariah investing. Otherwise we’re going to be here for a long time!

IBRAHIM: So it all starts with the creation of the universe. So, Shariah investing, I think it, you know, ultimately derives from the Quran and the teachings of the Prophet Muhammad. The rules or the, you know, the guidelines came up in the seventh century. And over this, you know, the centuries thereafter, you know, very, very rigorous schools of law developed around understanding this stuff, and then applying it. If we fast forward through the centuries, the latest modern incarnation of all this stuff, I would say, started probably around the 1970s, 1960s-70s. It’s when we had the first Islamic banks, this coincided very nicely with the huge financialisation that we’ve seen of the mainstream economy as well. And so, you know, Muslims are thinking, how do we fit into this, you know, massive kind of new world of financialisation? We’ve decoupled from the gold reserves, how does it all work now in this new world? And so you had Islamic scholars and practitioners who came up with a body called the AAOIFI, which is a catchy name, yeah. And they’re based in Bahrain, there’s an equivalent version, which is also very respected in Malaysia, so that Malaysia and the Middle East are the two big hubs of Islamic finance. And so these guys took the traditional teachings and applied them and came up with guidelines. For example, how do you deal with hedging, currency exchange? Or what does Islamic law have to say about, you know, insurance? Or, how does Islam screen different kinds of stocks? What about crypto? I mean, this is a huge new thing, right? So this is a very living kind of application manual that people look to now.

PHILIPPA: But that’s really interesting. It is, as you say, it’s a living mechanism. And it’s kind of constantly being reformatted to keep pace with everything else that’s going on in the financial world.

IBRAHIM: Totally 100%. I mean, even within stock investing, we saw the craziness over the last two years. And now we’re seeing, you know, continued craziness in the other direction. And as a result of that, scholars actually said that the debt to asset ratio that I was talking about, they actually shifted that to the debt to market cap ratio.

PHILIPPA: Okay, before you go any further, market cap?

IBRAHIM: Market capitalisation - how big a company is, and -

PHILIPPA: Value rather than assets per se.

IBRAHIM: Exactly. Just because there was so much, you know, volatility going on. And so that’s a really live example of Shariah in practice. And then of course, you’ve got crypto which is, you know, its own beast.

PHILIPPA: You see, I’m glad you raised that, because actually, now I have to know. What is the thinking on crypto?

IBRAHIM: I think the majority would say that it is permissible in principle and they see it as a digital asset. And then you need to analyse it, each crypto asset for whether or not it’s structured in a Shariah compliant way or not, and most of them are, but then some of them, let’s say something like compound, or yearn finance, or other interest-based crypto assets, where the purpose is just to do lending, but in the crypto world, that will be problematic. Yeah. It’s cool. I’m enjoying screening these things.

PHILIPPA: It’s intensive, isn’t it? Because this is such a fast-moving world, and things come along constantly that need consideration about whether they’re going to work or not.

IBRAHIM: 100%.

MARTIN: You mentioned the crypto currencies themselves, like is the blockchain tech compliant itself?

IBRAHIM: Yeah, there’s no issues with the software and the underlying technology and, you know, decentralised ledger. I think the issue comes with cryptocurrencies being very volatile. I guess one of the principles was Maysir, right? Not gambling. So they’re a bit concerned about, you know, is this just a massive Casino? The Shariah, at heart, you know, I’ve mentioned all of the rules. But actually, if you take a step back really what this Islamic law is about, when it comes to finances, they want - you want to stop injustice, and you want to stop uncertainty in the market. And if you can deal with those two things, you know, that’s a good situation.

PHILIPPA: So the regulatory framework, for people who aren’t used to it, that is a bit confusing, isn’t it? I mean, that’s a bit unexpected, because we’re used to regulation. You can do this, you can’t do that in financial services. But that’s not quite how it works.

MARTIN: That sounds preferable somewhat, like having a discourse rather than just the central body saying, “This is what I think”, because that’s going to be quite centralised, in their opinion will be their opinion. Where if you have a discourse, you’ve got other views coming into it, which is probably a more interesting way of dealing with these things.

PHILIPPA: More collaborative?

IBRAHIM: I agree, I actually think that there’s a lot of alignment between how, let’s say, the FCA sets its rules and Islamic law because the Financial Conduct Authority when it sets its rules, you know, they talk to consumers, they talk to the government, they talk to companies, and then people look at the laws and they apply them. And same with Islamic law, where, you know, there are the discussions within the academia, and then the discussions with the practitioners, and then it gets kind of codified into these like standards that AAOIFI put out, and then it gets applied. So I think there is a parallel kind of situation.

PHILIPPA: So, but Martin, I mean, what about investment returns? Because you know, there is big money to be made from Haram industries, like tobacco, isn’t there, realistically? So does that mean Shariah returns are bound to be lower than conventional investments?

MARTIN: Like all investments, it’s a bit of a cop-out answer, but it depends. There can be money to be made with haram investments and using tobacco as the example. I think the reality is that whilst those companies might pivot into something that’s not tobacco, necessarily, the general community will look at those companies and say, “You know what? I know what you’re all about, and I’m just not going to invest in you”. And so, you know, those companies by virtue of that their market cap will decrease.

PHILIPPA: So your argument is they’re not actually sustainable?

MARTIN: I don’t think they are. That’s my personal view. And I don’t think they’re sustainable and I think money will go elsewhere, to more sustainable investments. The other comment about returns, though, it is fair to say that the Shariah investments are certainly the ones that we have at PensionBee, it is 100% equity, which means stocks in companies, therefore, it is subject to market turmoil. And that fund doesn’t invest in things like bonds, because of the riba component, right? Can’t earn interest. So there is a consequence that, you know, bonds are usually used to offset the volatility of stocks, because it can’t invest in bonds, it’s going to, as a consequence, have a volatile risk-reward profile in Shariah compliant investments, certainly the one we have.

PHILIPPA: So you would say this is long-term, as you said, and that’s maybe the point to really stress. We’re not talking about immediate wins here.

MARTIN: No, not at all.

PHILIPPA: And the wins aren’t necessarily as tangible, maybe. So we are talking about - to put it slang-ily - feel good wins, as well as cash wins. You know, you feel good about yourself doing this stuff, because it’s socially responsible. Yeah, there’s quite a lot to be said for that.

IBRAHIM: 100%. And really, you know, with pensions, the majority people would be investing for the long-term anyway. Right?

PHILIPPA: Absolutely. It’s fascinating, isn’t it? And then we’re going to talk about PensionBee’s own Shariah pension in a moment. But this is an intensive business, selecting investments. Presumably, that feeds into charges, does it?

MARTIN: Yeah, it does. So there is a committee actually, that and going back to that discourse point we said earlier, there is a committee that looks at the portfolio mix of the Islamic Finance Fund that we have, and then make decisions on what’s in what’s out. I guess, you know, customers that want to purchase this plan, can have that level of trust with it. They know that it’s been looked at properly. That does have a consequence, it does have an impact on fees compare to other investments, because of the level of scrutiny and the additional work that goes into it. There’s also fortunately, unfortunately, diversification is impacted. You know, we mentioned the word “bonds” before because they earn interest, in riba, and so they can’t be compliant. But this talks to limited scope of Islamic finance and something that like industry really needs to address and find other ways to make this work. It’s very interesting not to like harp on the whole crypto thing. But it’s interesting that that as a product isn’t necessarily like excluded from the outset. So there is an ability for new products and services to come into this Islamic finance world and actually be -

PHILIPPA: It’s work in progress.

MARTIN: Be part of it. Yeah.

Shariah finance in UK

PHILIPPA: Yeah. It’s so interesting. I mean, because, like all investments, there are pros and cons aren’t there, to Shariah? But there’s this huge community worldwide, millions and millions of people who will not invest their money in anything that is Haram. So if people are thinking about this and thinking, this is interesting, how hard is it to find Halal investment?

IBRAHIM: Historically, I think it was pretty difficult, because there weren’t as many around and it was a little bit harder to surf it as well. That problem has, you know, somewhat receded and there’s a lot more products in the market. Now, I think, going to Martin’s point about, you know, in the pension space, where are these products? Therefore, I think there’s a couple of issues. The first is that, you know, because these products are still relatively nascent, it will take time to build up the assets under management and the scale that is needed to make it viable in the pension landscape. I mean, to give you some context, the HSBC fund from memory is something like $3 billion or £3 billion. That is actually relatively small in the widest, you know, wider picture. BlackRock and others. They’ve got huge. They’ve got literally trillions of dollars under management.

PHILIPPA: It’s a minnow.

IBRAHIM: Yeah, exactly. And because the fees that we’re talking about are in the 0.2, 0.5 kind of range, in order for a company to be able to offer that in a viable way, it wants to make sure that it has as much you know, of assets under management that it can get a hold of. But if you’re targeting a niche audience, that is already restricted. And so that means that the fees need to then therefore creep up a little bit. So there’s a whole bunch of different factors. But from our side, we will really want to encourage Islamic Sukuk bond. So there’s an Islamic version of a bond, which is called the Sukuk, and there’s funds that offer that. So I really want to encourage those kinds of, you know, those kinds of funds to be a lot more easily accessible to people like, let’s say PensionBee.

Future of Shariah pensions

PHILIPPA: Yeah. So I mean, I’m interested to know whether Shariah financial services are actively targeting non-Muslims now with these products. I mean, is that seen? Are non-Muslims seen as a market for them?

IBRAHIM: Yeah, absolutely. The majority or a very significant number of people who use the Nest Shariah workplace pension, were actually non-Muslims, just because they were attracted to the tech stocks aspect of it and the high growth.

MARTIN: Shariah out was like finances based on religious principles. But so what? Right you can be non-religious and still be interested, like you say, tech stocks, right? People that want to take on that risk, high growth kind of fund at the start of their career - they look at it and go “100% equity? Cool, that’s for me, why not be invested in this?” And then also, you know, that it’s got that sort of moral aspect of excluding bad industries. And so it sort of ticks a couple of boxes for a lot of people.

PHILIPPA: Yeah, a lot of wins. So I mean, we mentioned PensionBee’s own Shariah pension plan. It is, of course, open to everyone, Muslim or not. Tell us about that.

MARTIN: Exactly right. So the plan is, from us, it’s managed by State Street Global Advisors. They purchase it from HSBC, which is, you know, a massive investment firm or asset manager globally. And they’re the ones that have the Shariah committee that looks at the investments to make sure that they’re appropriate for the fund. It follows the key principles. So no interest, you know, the ban of uncertainty, you know, speculation and gambling. What we charge is 0.95% annually. And for anything above £100,000 with a PensionBee plan, that fee is halved. The more people that get into it, you get scale, right? And so then, you know, fees can change in time. It is 100% equity, like we’ve talked about. And what that means is its company shares, so investments physically into individual companies that are held in the fund, which isn’t uncommon with Shariah savings, because for example, bonds can’t be included because they own their own riba. Although interestingly, Ibrahim’s made that comment around - there’s an Islamic finance approved version of a bond. That’s quite interesting to see where that goes.

IBRAHIM: Yeah, there’s a lot of Sukuk out there, which is the Islamic finance version. And instead of lending being the basis of it - its rental. You know, there’s some kind of asset that is the basis of it. The UK government issued its own Sukuk where they put a government building as the basis for that and it was a sale and leaseback so the government sold that to the bondholders and then leased it back from them. So that was how you were getting a regular return from it.

PHILIPPA: This is the government issuing a Shariah compliant bond effectively? Well -

IBRAHIM: Exactly.

PHILIPPA: Yeah. I mean, that kind of takes me into my next question, really, which is expansion into the wider financial services sector, but from what you’re saying that’s happening already?

IBRAHIM: Yeah, absolutely. I think, you know, Islamic finance touches on pretty much every area that you can think of from, you know, be it insurance, pensions, bank accounts, you know, you name it, every single thing that you can think of, when it comes to the financial sector, there’s an Islamic aspect to that, which just needs to be thought through.

PHILIPPA: And then presumably, you’d say the same. This is - I can see that you’re thinking this is a really wide landscape now.

MARTIN: Yeah, for sure. It’s the tip of the iceberg, but like, who knows, until we have these kinds of discussions like this, no one really knows about this stuff. And it’s like, it kind of needs to be promoted more by industry within industry, so that people do get an appreciation of what’s out there.

PHILIPPA: Actually, there’s one point I want to make. I mean, listening to you two talking about it, and I didn’t know very much about it before. The thing - apart from the whole, you know, socially responsible thing, the transparency of Shariah investing feels very appealing to me, because you do know where your money’s going. Do you think that’s going to be a big factor for people?

MARTIN: 100%, it will be. We often have customers say to us, “I want to know what my plan is invested in”. It’s fair enough, you know, it’s people’s money. They want to know where their money’s gone and historically, the financial sector has been this big sort of like smoke and mirrors.

PHILIPPA: They just take your money and do something with it.

MARTIN: Do something with it. Where does it go? I don’t know, somewhere? Just worry about it in 50 years when you’re lifting your pension, what happened in that time? We’re trying to promote people to take retirement savings seriously, right? And by being transparent, I think there’s that level of comfort with knowing what’s going on and so people will engage with it more.

PHILIPPA: Okay, there is so much to talk about here. But we’re going have to wrap this one up anyway. It is such an interesting subject. I have learnt loads and I hope everyone else has too. Ibraham, thank you very much indeed.

IBRAHIM: It’s a pleasure.

PHILIPPA: Martin, thanks.

MARTIN: Thank you. Happy to be here.

PHILIPPA: Thanks to everyone for listening. If you’ve enjoyed this episode, please rate, review and share it. While you’re at it, why not subscribe and make sure you never miss a future episode. You’ll find the series in all the usual places: Apple, Spotify, wherever you’d like to get your podcasts. If you’d like to find out more about Shariah investing, you can find loads more information in the show notes. If you’d like to get in touch with any feedback or questions, email us at podcast@pensionbee.com or tweet using the handle @PensionBee. A final reminder that anything discussed in the podcast should not be regarded as financial advice. And as with all investments, your capital is at risk.

Music starts

Next month we’ll be back with an episode you will not want to miss because it is all about staying safe from financial scams. Join us then.

Catch up on episode 5 and listen, watch on YouTube or read the transcript.

Risk warning

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

Open Banking’s a system designed to connect third-party services with banks and customer banking information to exchange financial data. Third parties, such as budgeting and cash flow management apps, are then able to provide consumers with greater insights and control over their finances enabling them to make better decisions over how they manage their money.

Although Open Banking has only been around since 2018, it’s generated a lot of interest and seen rapid uptake by customers. In 2020 it enabled almost six billion AIS API calls in the UK alone and has attracted over five million users since its launch. But while the numbers suggest Open Banking is a success, it’s also received its share of criticism.

We’ve seen CEOs from different fintech companies express concerns over some of the barriers to entry they need to overcome in order to successfully implement their products and services. And some have even gone so far as to describe Open Banking as a failure.

So, what are some of the challenges which may be holding back Open Banking from making even faster progress and broader adoption and what will it take in order for it to start working for everyone in the UK?

A complex balance between 4 players

A unique challenge in driving the adoption of open banking forward is the sheer number of key players and the relationship between them involved in making it a success. Let’s briefly outline who they are.

Perhaps the most obvious group of players are the banks themselves. As Open Banking relies on bank and transaction data to be shared for the benefit of the customer, it’s essential for banks to make this information available in the first place.

The second group involved are third party providers. They utilise that data to provide services which enable customers to make better use of their financial transaction data. Examples include FinTech companies such as Snoop or Emma whose products give their customers clearer insights into their spending habits to enable them to budget more effectively.

Thirdly, there is the regulator in charge of setting the requirements and best practices of the Open Banking ecosystem. Within the UK Open Banking is regulated by the Financial Conduct Authority who authorises who can use Open Banking APIs, set the timelines for adoption by banks and businesses and ultimately, ensure that customers’ interests are protected.

Finally and most importantly, there are the customers. Open Banking can unlock innovative new services which have the ability to give customers greater control over and easier ways of transacting their finances. But it’s crucial these are effectively communicated so that customers understand the benefits Open Banking can bring to them.

This complex balance and coordination is what makes successful implementation and delivery of Open Banking services so tricky. Open Banking relies on four different players with different interests to move in the same direction and at the same speed to make this innovative technology blossom.

What do we need to make it work?

Although we have described the four key stakeholders involved, ultimately it comes down to the banks and regulators to standardise technological solutions, as well as the rules and expectations around them, effectively. This is so that businesses are able to efficiently design and develop new and innovative use cases, which drive customer engagement and uptake of Open Banking-based applications. Though a lot of work has been done in this area, there is still much more work ahead. Banks and regulators need to continue to work together and be closely aligned over the goals of Open Banking.

Non-uniformity among the banks is one of the major reasons why businesses haven’t been able to make use of the data that Open Banking has to offer and is an issue that regulators should be addressing with more urgency. For example, there’s still no standard functionality around regular payment start dates; some banks allow weekend payments, yet others don’t. Some banks allow same-day Standing Order set up, while others require three days’ notice.

The same’s happening across most Open Banking journeys. Let’s take the example of a simple PIS (Payment Initiation Service) payment. The limit of payments allowed ranges from ^{_tax_free_childcare}-£50,000 depending on the bank. Some banks won’t even allow payments to be made if the payee wasn’t previously saved in the banking app, making the use of Open Banking redundant.

These sorts of differences make the integration of Open Banking complicated and in turn make it harder for third-party providers to develop the almost limitless use cases and the great value customers could derive from them, that such standardisation would provide.

Some big banks have been delaying their Open Banking adoption, partly because they hoped it would go away as fast as it came around and partly because of the technology investment required to make this work. Greater resources need to be put into providing their data in a secure and standardised way for customers to truly benefit.

As a result of the slow and convoluted implementation of Open Banking, users haven’t felt the confidence or the need to start using those services as much as it was initially projected by analysts. As of the first quarter of 2022, only five million users have used Open Banking, in contrast to the 33 million users that was predicted.

What does Open Banking’s future look like?

Despite all the criticism about the speed of implementation, Open Banking’s able to provide tremendous benefits to customers’ financial health. Such clear benefits make Open Banking a technology that is here to stay and will force businesses to find creative ways to utilise it for that purpose.

At the same time, the pressure on banks to provide the data according to the Open Banking Standards needs to be increased. In 2022, banks must embrace the new technologies that will benefit their customers by adopting the necessary technical requirements.

Open Banking’s already changing the way we manage our finances and there are many advantages. These include helping customers make better informed financial decisions, providing innovative services which make transacting personal finances easier and enabling financial products and services to be more accessible to many more people. Open Banking powered payments are also a safer way to set up bank transactions than the traditional standing orders and Direct Debits that represent a higher risk of human error and fraud. But it also opens up opportunities for financial institutions and merchants too – from reducing costs to even leveraging new customer segments which create the potential to increase revenues.

So, although the concerns and the need to address them are legitimate, the key players would do well to remember that making Open Banking work for everyone ultimately benefits everyone and especially their customers.

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.

Our financial security and our overall sense of wellness are intrinsically interwoven. After all, money impacts our ability to do almost everything in life. Finding a healthy balance between the two can prove challenging though. In order for someone to live a joyful, fulfilling life doing all the things that they enjoy, they require the financial means to do so. On the other hand, someone who spends too much time focused on building a healthy pot of money may have no time to actually enjoy doing those things that light the fire inside them, which will ultimately leave them feeling unhappy and disillusioned.

We live in a consumerist society where we’re conditioned towards the need to earn more money. For many, more money is an innate part of their self-worth and how ‘successful’ they feel. The problem lies when earning more money comes at the cost of other things in life. Taking on more hours at work can leave less time for hobbies or caring for loved ones. Building a side hustle to bring in additional income may mean sacrificing time previously spent at the gym or with friends. Accepting a new higher paid job with a longer commute could impact the amount of time spent with family. When our focus is on earning more, other important areas of our lives can be negatively impacted.

This is where life planning comes in. Life planning is the marriage of meaning and money. It involves uncovering what it is that lights us up, and then pulling together a very intentional plan for our finances to make sure we can live the life we deserve, both now and in the future. In essence, life planning helps determine the balance for our unique, purposeful life, and develops a plan to get there.

Kinder’s ‘Three Questions’

Known as the father of life planning, George Kinder, a Certified Financial Planner, developed a framework encompassed by his famous ‘Three Questions’.

“Life planning hinges on our individual responses to profound and provocative questions challenging us to look at how close we are living to what would be most meaningful, passionate and exciting for us.” - George Kinder

The ‘Three Questions’ exercise facilitates the creation of an intentionally designed life. It helps you to get crystal clear about what will make you happiest and then prioritising what matters most. I recommend you give it a go! It’s a great exercise to do independently if you’re in a relationship, and then come together to see each other’s answers.

Before you read further, be aware that it pays to really take the time to be true to yourself in your answers. Throw out any ideas of what you feel you ‘should’ do with your life and lean into what you truly want. Also, it’s best if you complete your answer to question one in its entirety before even reading question two, and equally important to finish the second question before considering question three.

Question 1: Design your ideal life

The purpose of this first question is to figure out what matters to you in life. Essentially, it’s about your broad life goals.

Imagine that you are financially secure and that you have all the money you need for the rest of your life. How would you live your life? Would you change anything? What would you do? Let yourself go. Don’t hold back your dreams. Will you change your life and how will you do it?

The joy here comes from having unlimited funds to enable you to go wild in terms of what you would do with that kind of freedom.

Answering the first question is fairly easy because if money were no object, there are plenty of things we would all want to do. However, the questions do become progressively more difficult to answer and require some deeper introspective thinking.

Question 2: Time is running out

This second question is a little more tricky to get your head around, as now you don’t have unlimited funds, but instead have a finite amount of time in which to do what makes you happy.

This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life, and how will you do it?

In answering this question you will develop your unique ‘bucket list’; those important things that you want to do, be or have before the end comes.

The point of this question is to evoke deeper clarity over your most deeply held values. If you already have an understanding of those qualities that you believe are most important in the way you live and work, you have a head start. However, this second of Kinder’s three questions helps go much deeper into what you value most by imposing a time limit to help you get really clear on your priorities.

We’ve all said to ourselves or loved ones ‘we’ll do that when….’. The answers to this second question helps enlighten us that we can and should be living our best life today. We don’t have to wait for when the kids are at university, when we earn more or whatever self-imposed milestone we have put in the way of taking action. The time is now.

Question 3: Today is the day

But what if you knew that the end of your life was coming even sooner, what would you do differently?

This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Reflecting on your life, on all your accomplishments, as well as on all the things that will remain undone, ask yourself: What did I miss? Who did I not get to be? What did I not get to do?

What’s really apparent with the answers to this question is that typically, people will not express a wish that they had earned more money or worked more late nights or taken the job that took them away from their families. In contrast, they wish they had spent more time with their loved ones, travelled more widely, enjoyed their passions and ensured that they were leaving a positive legacy.

According to Kinder, the answers to this question tend to fall into five categories:

1. Family or relationships and a desire to spend meaningful time with those we love. 9^{_personal_allowance_rate} of the responses to the final question contain this topic.
2. Authenticity or spirituality.
3. Fulfilling creative goals.
4. Giving back to the wider community and leaving a meaningful positive legacy.
5. A “sense of place” (visiting places that are special, a desire to live somewhere different or to help the environment).

Feeling the emotions

Completing these questions can be quite an emotional exercise. Question one has the potential to evoke strong feelings of excitement, ambition and joy. However by question three, the tears may be flowing alongside feelings of regret and sadness at things you haven’t got round to doing which are so important to you.

Being aware of these emotions for what they are is really key here. The ultimate aim of this process is to enact a life plan that will often require a change of behaviours, habits and choices from those which we currently demonstrate. How we ‘feel’, or want to feel, can be the kickstarter for those changes. Emotions are powerful drivers for our behaviour. Take the time to acknowledge what comes up for you with each question and the strength of each emotion, then use this to fuel your actions.

Take your responses and turn them into inspired action

The Three Questions exercise can be truly enlightening. It highlights any obvious disconnect between what you value the most and how you are currently spending your time. Additionally, it clarifies the importance of aligning your behaviours and choices now with what you want in the future.

But it’s not enough to just have the awareness. The real value comes when we choose inspired action to live the life we most long to live. This often requires the support of a professional financial planner who can marry your life goals with your financial choices to ensure that you can achieve your life plan. Alternatively, a website called Life Planning for You is available from the Kinder Institute. Here you can document your answers to the three questions, as well as other useful life planning tools, and have a go at mapping out your life plan yourself.

It can be hard, especially for the younger generation, to save money for a future which seems such a long way ahead. However, using these questions, instead of thinking of putting money into a pension ‘for retirement’, this process allows you to see your greater life vision, feel all the emotions associated with creating that life, and create a sense of intentionality around where your money goes, to make sure that your life plan actually happens.

What typically comes across in this exercise is that what most of us are really seeking out of life isn’t more money. It’s quality time. Time to enjoy the things we love most, time to live a purposeful life and time to enjoy the company of those who mean the most to us.

Everyone should be investing financially for their future selves. But alongside that, this highlights the other investments you need to make. Make a conscious choice to take the time to invest sufficiently in your relationships and hobbies and communities.

So many people go through life dissatisfied with how it’s turning out for them. Instead of living a life by default, choose to live your life by design!

Risk warning

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

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

Living on a fixed income, like a pension, when inflation is high can be challenging. Everything is costing more but the money you have coming in each month is often the same.

Inflation has just hit 9% as of November 2021, a 40-year high. This means that the cost of the things we buy every day, from milk to a Mars bar, is getting more expensive, faster than it did the last time inflation soared, way back in the 1970s.

This may mean your pension pot doesn’t last as long as you thought it would. Or you may not be able to achieve the standard of living in retirement you thought, or hoped, you’d have.

During periods of economic uencertainty, it’s a good idea to look again at your retirement plan, and consider if you need to make any adjustments.

Here are five good ways to protect your pension income from increases in the cost of living.

1. Retire later

Waiting a bit longer than you planned to retire can mean you avoid retiring at a time of high inflation. This can protect your pension pot from the negative impact inflation has on stock markets. High inflation can upset stock markets and may make the value of your pension investments fall.

Withdrawing money from your pension while stock markets are falling can leave you much worse off than taking a pension income when markets are less volatile. This is because, when you sell investments in a falling market to give you an income as cash, it runs down your pension pot faster.

No one can know for sure when inflation will fall again. But waiting a few more years before retiring and dra

2. Use up cash ISAs first

If you have alternative pots of money to draw on, like cash ISAs, for example, they can act as a good backup source of income. Drawing on your cash ISAs for your retirement income for a short while, instead of your pension, allows time for the stock markets to grow again and creates an opportunity for your invested retirement pot time to recover at the same time.

Inflation slowly erodes the value of money, such as cash savings left in the bank, which means its buying power is reduced. If you want or need to still draw down from your pension, just taking income from certain investments, such as bond payments and dividends, can help slow the negative impact of withdrawing money by selling investments while they are falling in value.

3. Withdraw less

Reducing how much you withdraw from your pension may sound strange in a cost of living crisis. But doing so can help your pension grow in the long run. Withdrawing less from a pension each month means keeping more of it invested. This gives it a better chance to grow more than the rate of inflation, keeping your savings growing at a similar rate to the cost of living.

Traditionally, people entering retirement have been told to take around 4% of their total pot a year in income. But during times of high inflation, and especially for smaller pots, it may be beneficial to reduce this.

Remember you don’t need to take the same amount each month. If some months you need to withdraw higher amounts, it can be worth considering taking less in other months, to balance it out.

4. Stay invested – but look at where

It’s important not to panic if you see the value of your pension investments falling. Markets normally go up and down over the months and years.Typically the worst thing you can do is to sell out of your investments when markets are falling. And even if you did, and left the money in cash instead, high inflation would quickly reduce its buying power. But now can be a good time to see where you are invested.

It’s usual for people to move their investments into less risky assets as they approach retirement, thinking this will keep their pot safe. But people are living longer. To make a pension pot last longer throughout perhaps a 30 year retirement, it needs to stay invested in assets that are more likely to increase in value.

Do you have enough of your pot in higher risk assets that will typically increase in value, like company shares and investment funds? Is too much of your pension pot invested in cash-like assets that will have a hard time making you money during periods of high inflation, such as government bonds? Are there better, low-risk alternatives?

Diversification that is right for your life stage is key.

5. Add to your pension

Falling stock markets are not all bad news. Many investors see this as an opportunity to buy more assets at lower prices. If you are able to, it can be worth considering whether now is a good time to top up your pension pot, to give you more later on, or to make your pot last longer.

However, there are tax implications if you have already begun drawing on your pension. Read the government guidance.

Laura Miller is a freelance financial journalist.

Risk warning

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

February was, in many ways, a continuation of January’s rocky start to the year. Stock markets continued to fall as a result of rising inflation, rising interest rates and a generally weaker economic outlook.

But Russia’s recent invasion of Ukraine has added another uncertain element to the mix, which has already disrupted global financial markets and could see pensions experience further volatility for some time.

The impact of Russia’s invasion of Ukraine

The unprovoked invasion of a democratic and sovereign European country sent shockwaves around the world.

Severe sanctions are being put on Russia by many western countries, greatly isolating it economically from much of the world. Ukraine’s economy has also been severely disrupted, as its people shift from a ‘thriving’ to ‘surviving’ mode of operation.

So what does this mean for your pension? There are direct and indirect consequences.

Direct consequences

The following could affect your pension’s investments directly:

• European and US stock markets fell in value, as investors began moving money towards lower-risk investments such as cash, bonds and gold.
• While more investments are made into cash and other lower-risk investments, high inflation will severely limit its real-term growth potential.

Indirect consequences

The following could affect your pension’s investments indirectly:

• The Russian stock market fell 3^{_personal_allowance_rate} the day it invaded Ukraine (it could have been more, had the Russian central bank not intervened), as investors rushed to sell their stocks ahead of potential sanctions.
• The cost of raw materials has increased (wheat prices are at a 13-year high - Russia and Ukraine account for ^{_corporation_tax} of global wheat production), impacting global production and further fuelling inflation.
• The cost of energy has increased (oil prices are at an 8-year high), impacting global production and further fuelling inflation.

All these factors ultimately have global implications, and financial institutions are well aware of the potential impact on their customers. PensionBee customers can rest assured that our plans’ money managers (some of the largest and most experienced in the world) are monitoring this very fluid situation closely.

The table below looks at the exact percentage of exposure by plan type.

Source: State Street Global Advisors, Legal & General, HSBC and BlackRock

What happened to the markets in February?

February saw many global stock markets continue to fall as more investments were shifted into traditionally more stable assets such as gold and government bonds.

In the UK, the FTSE 250 had fallen by around 7% by 25 February.

Source: Google

In the US, the S&P 500 had fallen by around 6%.

Source: Google

In China, the SSE Composite had risen by around 3%.

Source: Google

The price of gold had increased by around 5% by 25 February.

Source: Business Insider

How is this impacting our plans?

Our Fossil Fuel Free, Shariah and Preserve Plans have no exposure to the Russian companies and our Tracker, 4Plus, Pre-Annuity and Tailored plans have minimal exposure to Russia - less than 0.4% to be precise, which is limiting the knock-on effects of economic sanctions imposed on Russia and Russian businesses to our pension plans.

However, our pension plans do continue to be impacted by the global stock markets’ turbulent start to the year.

If you’re in a higher risk plan

Customers in higher risk plans, like those further from retirement, may have pensions that are more exposed to the stock market. This helps maximise your pension’s growth potential while there’s still plenty of time to recover any short-term losses.

It also means that you’ll likely have seen your pension fall in value in February.

As we’ve mentioned, this is normal and expected behaviour. And we expect your pension to recover its losses and experience further growth in the future.

If you’re in a lower risk plan

Customers in lower risk plans, like those approaching retirement, may have pensions that are less exposed to the stock market, and more invested in lower-risk assets like gold and government bonds.

This doesn’t protect your pension against loss in value. But it does mean that any loss in value should be less severe than if it were more heavily invested in the stock market, like our plans for those further from retirement.

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

Have a question? Get in touch!

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

Risk warning

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

Gender pay gaps persist in lots of British companies, despite greater diversity in the workplace having a proven correlation with business performance. Countless companies are still behind the times in growing their female workforce, especially across senior levels. While the tide is slowly shifting towards equality, all those years without equal pay and pension contributions have created a divide: the gender pension gap.

The gender pension gap is simply the difference between the value of men’s and women’s pension pots. It can be measured at any point in time but it’s particularly large when women approach retirement as it takes many years to accumulate and build up a pension. PensionBee’s annual study of the UK Pension Landscape found that, on average, there’s a 38% gap between men and women’s pension pots.

The gender pay gap is almost exclusively framed as an issue women should be solving themselves. The message I consistently hear from the financial services industry is that women need to do more, however that’s neither effective nor fair. Placing the burden on the recipient of the system is simply not going to get us out of the gender pension gap mess.

Childcare responsibilities

Often unequal childcare responsibilities can be an explanation for the gap. Our research suggests that women typically reduce their working hours to care for children or elderly relatives, while men typically continue with their career progression and pension contributions during this time.

Last summer we modelled various interventions, and found that if men and women were to work the same hours at equal pay, with both working fewer hours to share childcare responsibilities during a child’s early years, before returning to full-time work, the gender pension gap could be eliminated.

One potential solution is couples taking Shared Parental Leave to close the gender pension gap within their relationships. However only 2% of new parents have used Shared Parental Leave since its introduction in 2015.

Gender pay gap

Another aspect of this issue is the gender pay gap reducing the wealth of women, as less pay over a lifetime of work leads to a smaller retirement income. Although the government has introduced mandatory gender pay gap reporting for companies of certain sizes, we’re still seeing a 16% pay gap. While these barriers are being acutely felt by women, a recent survey conducted by PensionBee revealed that men tend to underestimate the impact of these challenges on women’s retirement pots.

Gaps in pension wealth only grow as men and women get older: increasing from an 18% gap when women are under 30, typically before they begin having children, to a 46% gap once they reach their 50s. Our analysis suggests that in real terms women over fifty are set to retire on the smallest personal pensions (£87,500) whereas those under thirty are predicted to amass pots worth a third more (£140,700). One possible explanation is the arrival of Auto-Enrolment, which has helped increase saving rates among the younger generations.

Now you may think that young women are better prepared for retirement, but the pension landscape is constantly changing. Between the State Pension age and life expectancy of women) both rising in the UK, there’s also an increasing pressure as women are living longer with less to live on. So the issue is unfortunately compounding faster than many women’s pensions.

Leading the change at PensionBee

At PensionBee, we see our role as critical in building the future we want to see, for both the customers we serve and ourselves. That’s why promoting diversity and inclusion within our team culture and hiring processes is a key focus of PensionBee, and echoes our commitment to achieving wider representation and equality in the pensions industry.

We’re keen advocates of Shared Parental Leave. As part of its commitment to promoting gender equality, PensionBee prioritises helping employees share caring responsibilities from the very beginning of their roles as parents, providing gender-neutral parental leave, which includes 110 days of full pay to all new parents. We’ve also had many instances of promoting women while they’re taking maternity leave.

As a member of the HM Treasury’s Women in Finance Charter, which seeks to see gender balance at all levels across financial services firms, we regularly report publicly on female representation. We’re proud to have achieved gender parity in all levels of the business including our board and are committed to actively recruiting females into traditionally male-dominated positions, such as roles in our technology team. We’re also focused on promoting women who have the potential to reach the management team, as we firmly believe gender balanced teams drive better products and services for consumers

As passionate campaigners for wage equality, we know that where a pay gap exists for women, a pension gap will follow. We decided to start reporting our pay gap voluntarily back in 2020 because we believe it’s important for companies to start tracking these metrics as early as possible and, if necessary, while changes are easier to make. We were proud to reveal a median hourly pay gap of just 4%, and a median bonus pay gap of ^{_personal_allowance_rate} among staff, as at December 2020. The gap is in line with our target of ^{_personal_allowance_rate}, with a variance of +/- 5% owing to the overall size of the employee base.

Recently, I was joined by Sam Brodbeck, Personal Finance Editor at The Telegraph and Emilie Bellet, founder of the financial education company Vestpod, to discuss this issue on the Pension Confident Podcast. Together we agreed that pensions are long-term investments and solutions also need to be long-term to give us time to close the gender pension gap together as a society.

At PensionBee, we champion inclusion in our product and service, where we strive to help all people achieve a happy retirement in the form of financial freedom, good health and social inclusion. We’re going to keep campaigning and shining a light on these issues. By listening to women and our customers we can drive the change they want to see in the financial industry and beyond.

This article was last updated on 05/12/2024

Sustainable investing focuses on funding companies that consider their long-term impact on people and the environment.

There are a number of ways this can be done in practice, but it typically involves either:

• investing in companies that meet a predetermined sustainability criteria, and avoiding ones that don’t; or
• investing in companies that may not be sustainable today, but demonstrate a transition towards becoming sustainable.

The goal of both methods is to make a return on investment, while positively affecting people and the environment.

When a sustainable investment fund sets their criteria, they may consider:

• Social practices - such as providing high employee welfare standards, having adequate board/senior-executive race and gender diversity, and working with ethical supply chain partners.
• Environmental practices - such as reducing or eliminating greenhouse gas emissions, disposing of waste in non-environmentally damaging ways, and producing recyclable products.

As part of their investment activity, the investment fund may employ a team to analyse, report on and engage with the companies they invest in to encourage or challenge them to improve their sustainability credentials.

Interest around sustainable pensions is growing, too. In Episode 2 of our Pension Confident Podcast, our Chief Engagement Officer, Clare Reilly, explains, “we surveyed the same group of customers twice - in 2020 and 2021 - and in 2020 we found that only 34% of them wanted to remove oil completely from their pensions. But we found that it had gone up to 56% in 2021.”

How does a sustainable pension work?

A sustainable pension plan invests its customers’ money in a way that benefits people and the planet. It operates much the same way as a sustainable investment fund, since it’s essentially a type of long-term investment fund - but crucially, savers receive all the tax benefits of a pension too.

PensionBee offers two responsible investment plans especially designed for those who want to invest their money in line with their values: the Climate Plan, and the Shariah Plan.

The Climate Plan invests in more than 800 publicly listed companies globally that are actively reducing their carbon emissions and leading the transition to a low-carbon economy. The Climate Plan is designed to achieve net zero emissions by 2050 through an accelerated decarbonisation strategy. The plan’s objective is to align with the goals of the Paris Agreement to keep the rise in global surface temperature well below 2°C above pre-industrial levels. It does this by continually reducing the total intensity of the GreenHouse Gas (GHG) emissions produced by companies in the plan by at least 1^{_personal_allowance_rate} each year. So, even if the global economy uses more carbon over time, the Climate Plan will move in the opposite direction, always using less.

The Shariah Plan only invests in Shariah-compliant funds, which are a branch of socially responsible investing shaped by the Islamic faith. All investments are approved by an independent Shariah committee, who work closely with the fund managers, State Street Global Advisors and HSBC. Anyone can choose the PensionBee Shariah Plan including those who want to invest according to the Islamic faith as it excludes investments in alcohol, gambling, tobacco, military equipment or weapons, pornography and any products containing pork.

How can you make a positive impact with your pension?

Investing in a sustainable pension plan is as simple as joining any other pension plan, as there are no extra forms to complete or work that you’ll need to do.

If you’re already a PensionBee customer - head over to the ‘My Plan’ page within your BeeHive. Scroll to the bottom of the page and you’ll find a ‘Switch plan’ section. Find your plan of choice and click ‘Switch plan’. You can also do this using the PensionBee app by tapping the ‘Account’ tab and selecting ‘Switch plans’.

If you’re not a PensionBee customer and want to consolidate your old pension(s) - you’ll first need to sign up. We’ll ask you for some information about your old pensions before we can transfer them, and you’ll be able to select the Climate Plan or The Shariah Plan once you’ve signed up.

If you’re not a PensionBee customer and you’re self-employed - you don’t need to consolidate an old pension to sign up. You’ll simply need to visit our self-employed pension page and sign up from there.

Once you’re signed up to the Climate Plan or the Shariah Plan, you’ll be able to monitor your balance, adjust your contributions and plan for the future just like you would with any other PensionBee plan.

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 is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to Episode 4 here, or scroll on to read the conversation.

PETER: Welcome, everybody to episode four of the Pension Confident Podcast. I’m Peter Komolafe, and today we’re going to be asking the question: Is buying a property actually a better way to fund a happy retirement as opposed to investing into a pension? You’ve got it, we’re wading into the property versus pension debate.

So, when it comes to retirement, some people will say that their home essentially their pension fund, and data from the Office of National Statistics suggest that one in four people, that’s a quarter of people here in the UK, regard their home as their retirement fund, essentially. And it’s easy to see why, the property market has performed extremely well over the last few decades, by far outstripping inflation, but is investing in property really as safe as houses?

To get the full picture and, spoiler alert, see why in fact, investing in property at the expense of your pension just might cost you later on, stick with me. But just to begin, though, our usual disclaimer. Anything that we discuss here on the podcast should not be considered as financial advice. When you’re investing, your capital is at risk. Now I do have three experts with me. I’m joined by Rachael Oku, who is the VP Brand and Communications at PensionBee, I’ve got Abba Newbery, who is the Chief Marketing Officer at online mortgage broker, Habito and Ken Okoroafor founder of the Financial Joy Academy, and The Humble Penny, a personal finance website with a mission to helping you create financial independence. Welcome, everybody. How is everyone this morning?

RACHAEL: Very well, thank you.

PETER: Thank you so much for being here. So, to begin with, I just want to take a little bit of a straw poll. Do you consider yourself as one of the one in four who believe that their home is essentially going to be their retirement pot?

RACHAEL: I wouldn’t say that I’m against having an investment property later in life.

PETER: Good, Abba?

ABBA: No.

PETER: Okay, Ken?

KEN: Yeah, no, I’m definitely a fan of property, but not having all my eggs in one basket.

PETER: Okay, good to know. Now, to kick this off, I do want to get into how we actually got here looking at the markets, particularly. Now Abba, in the UK we’ve had this obsession about owning property and owning our property for a long time. Has this always been the case?

ABBA: Certainly, we do seem to have a greater obsession in the UK about property than other European nations and certainly, if you take going back to the 1980’s, and the right to buy that came through with Margaret Thatcher, that certainly seemed to fuel a surge in interest in owning your own property.

KEN: Well, I just think that in this country, we are obsessed with security more psychologically than in other parts of the world. So, if you think about like you watch TV, a lot of our TV shows are really about how you save money. There’s a much bigger drive towards having a level of security and I personally think that might be a reason why there’s just this huge drive for people to own their own home and that sort of stuff, compared to other parts of Europe, where it’s actually pretty okay to rent and see that as the thing to do.

PETER: So, Rachael, it’s fair to say in contrast, that pensions haven’t quite captured our imaginations as much. In fact, there is a study by Unbiased that says that one in six of the over 55’s haven’t actually paid into a pension at all. They have no savings. Why do you think that is?

RACHAEL: Well, I think there are a lot of reasons why people aren’t actually saving as much as they should be for later life. You know, we’re really woefully underprepared in the UK because people think that pensions are quite complicated, which means that they don’t take the action that they need to. They’re quite scared of making the wrong decision, which will affect their later life. Before auto-enrolment moment was introduced a decade ago, people didn’t have workplace pensions necessarily. People weren’t able to save as they are now. And then finally, if we’re comparing property to pensions, I think property is a lot more aspirational. I think you can plan to buy your dream home and its lot more exciting to have all the latest gadgets, to have all of those things and to achieve them now, is much more tangible than paying into a pension that will kind of come back to you when you’re sort of 55 or 57 from 2028. And, yeah, I think that’s the main difference. It’s quite hard for a pension sometimes to compete.

How did we get here?

PETER: The question is, do you believe that from a financial point of view, long term, that paying off your mortgage, faster and quicker, is a better retirement solution than a pension? I’m going to start with you, Rachael.

RACHAEL: Sure. Okay. So, I think the desire to use your property to fund your retirement is quite a common one. But I think sometimes people overlook the practicalities of that. I think if you’re an investor, you have buy-to-let properties then it’s quite different. You sell them off, maybe as you approach retirement, or you keep generating that additional income, but when you’ve got on the ladder, you’ve finally ended up in your dream home, the thought of actually having to vacate that when you get to 55-65, whenever it is that you want to retire, I think can actually be quite difficult for some people. Because if you want to free up some of the money or all of the money, you can’t stay in the property, usually. And I think that presents some challenges, especially when someone has worked for this their whole lives, they’ve finally achieved it and yeah, I think downsizing just isn’t always what people actually want to do by the time they retire. And then, of course, if you’re unfortunate enough to be coming up to retirement age, when the market is in a decline or it’s dipping, then you are quite hamstrung on what your options are. If you need that immediate cash, you may have to sell your property for a reduced price whereas a pension would still have more opportunity to grow.

PETER: What about you Abba? What do you think? Do you think that property may be a potential faster way or better way of actually acquiring a pension fund versus maybe a tandem approach?

ABBA: I think lots of things related to this question. I think the first thing is we’re talking about retirement as if it’s something that’s going to happen at 60 or 65. It is not. If you take the statisticians, kind of the generation, these guys sat next to me are going to live to 90+, probably to 100. So, your attitude towards pensions and saving, I think, has got to fundamentally change. I kind of grew up with parents who taught me that you’re going to get a final salary pension, so don’t worry about that. You’re going to get a State Pension, don’t worry about that. And that was kind of the 80’s generation, so pour everything into property. If you’re thinking about retirement being something to do at 65, you now need a pot of money that’s going to last you for another 35 years, another practically kind of half the life you’ve already lived, again. And so, I don’t think of it as a binary question. And I totally agree with your point about downsizing. I think one of the real fundamental blockers in the property market at the moment, which is hindering first time buyers’ kind of getting onto the market and holding up the prices is people living in their big family homes, that they now no longer need. But yes, older people aren’t selling their homes as their retirement fund, and that’s in part because they’ve got their final salary pensions, they’ve got the state funded pension, that’s not going to be the same for my generation or for your generation going forward, which may end up being a very good thing.

PETER: What about you Ken?

KEN: Obviously property gives you this gratification. You can see it, you can touch it, you can even paint it. You can do, you can shift rooms around, can do whatever you want. I think there needs to be - we need to get better at helping people visualise the benefits of their pensions. So, helping them to actually see like, “Man, this is really worth my while”. Because a lot of people say, “Nah, forget that. Pension, no way man. Not putting money into that” because they see as “I can’t access the money, so therefore, I can’t - there’s no point”, when in actual fact, that’s actually an advantage. The second thing I’d say is that we need to close the behaviour gap. There’s a gap that exists between where people are and where people want to get to and the thing that separates them, those two things is really changing kind of the way people operate, lifestyle and subscription to a life of living in debt and living on your credit cards. And, you know, living in the Instagram life. These are the kind of things that my generation, like, we need to kind of address. We’re not gonna close it fully but if we just narrow in on that gap between where you are, and where you want to get to. Just narrow in a little bit, the result you get, the output you get, is more money in pensions. More money in a buy-to-let or more money in… this is what actually happens. And if you think about what happens when you close that gap a little bit, is you’re really simplifying your lifestyle a little bit.

RACHAEL: I was just going to say, I think something that both Abba and Ken have mentioned, which is obviously completely true is that things are changing. The world of work is changing, we are living longer. The way that we come to interact with our pensions is going to change. I think earlier, speaking directly to the one in six over 55’s are underprepared, but I think, as the younger generations get to that age, I think absolutely the days of retiring at 66, which is currently the State Pension age, I think that will all become quite blurry. Whether or not there’ll be an adequate State Pension to retire with is another question that we can’t really guarantee at the moment. It’s going up and up and up. So where will that end up? At what age will you be able to rely on getting the State Pension? But I think we’re gonna see more people working for longer, as you said. Maybe following their passions later in life and just generally having income coming in from a few different sources, not just their pension.

PETER: And Ken coming to you, I know that, you know, obviously with the work that you do, you’ve got the Financial Joy Academy, which is there to help people build financial independence. You recently became mortgage free. You did that at age 34, which for many people is incredible. It’s the absolute dream, congratulations on that. Surely you had to sacrifice paying into a pension in order to make that happen? And if so, why? How did that actually compute in terms of your train of thought?

KEN: Okay, so, fantastic question. So, for me, I’ve always sort of thought to myself, what kind of life do I really want? And for me, that life involved lots of optionality, just being able to do what I wanted, when I wanted with my time. And one thing that really stood partly in the way of that was the mortgage for me. It took us seven years to pay the thing off and -

PETER: Why was paying off the mortgage the most important thing for you?

KEN: For me, that mental freedom was a big thing. The second was, it reduced our cost of living, and gave us more financial freedom, because essentially, like for us, now, it’s council tax, it’s light and heat and things like that and obviously travel and the things we find to be fun. But beyond that, it’s - our cost of living is much lower and it’s giving us that capacity to take more risks than I would have if I had something hanging over me.

RACHAEL: You are in a fantastically fortunate position. But for most people, the struggle is to get on the property ladder. The struggle is paying into a pension and saving up for the deposit on a house. So actually, it’s that struggle, that I guess, possibly because the average age of our customer is 42 that we’re seeing that end of the struggle more than the overpaying struggle.

PETER: Ken just mentioned there, obviously paying off his mortgage allows him a little bit more freedom. I wonder, is that something that would appeal to you in your own personal circumstances at all, Abba?

ABBA: No, I’ve chosen not to pay off my mortgage early. I think the opportunity to use your house as leverage is important. And the lifestyle I’ve chosen to live with my family means that, yeah, I could have bought a much smaller house and been mortgage free, but I’ve chosen to live a slightly different lifestyle. I’m incredibly lucky. I live in London; I own a house in London. I’ve seen enormous increase in that property. I managed to get on the ladder about 20 years ago. So, I’m a very, very lucky person.

KEN: Really interesting insight from you. I think one thing COVID has done, is COVID has made people look at money from the perspective of lifestyle. So, what do I really want for my life? has become a bigger question. I’m seeing this in comments. I’m seeing this in emails. I’m seeing this in DM’s. People are now asking a different quality of question, which is, what do I ultimately want down the line? “Yes, okay, I’ll buy a house”. Like, “Okay, that’s a pit stop, rather than the end goal. What comes after that?” And I think this is where the question of like, are we creating the right products for consumers? And things like that becomes interesting, because I think it’d be fascinating if I ran an organisation that’s providing mortgage products, I would be leaning into the trends. Which is, go and look at like my generation, the millennials, and the Gen Z’s coming after, who are inevitably going to be leading this country in the years to come. Those people want something else.

PETER: Would you add to that, Rachel?

RACHAEL: Well, I just wanted to come back on something that I thought was interesting around millennials, and then Gen Z. Around millennials and Gen Z, sort of redesigning their lives and how this is something that has sort of come out of the pandemic. I think even before that, we were seeing a change in the pensions industry. People used to have a job for life, they used to have one or two jobs and be quite happy. The ambition was to get a good job to buy your house and that was kind of it. You know, it’s not a bad life. It’s a good life, but I think things have changed. The world is slightly different now and the DWP estimates that people will have around 11 pensions in their career, and obviously auto-enrolment introduced 10 years ago is making people pay into those 11 workplace pensions so that now means up to 11 pensions potentially. The industry’s been quite slow to catch up in terms of making consolidation simpler and making it really easy to actually manage all of these pots and to bring them together so that you can better plan for your retirement.

The case for investing in your pension

PETER: Rachael let’s compare the return on investment versus property. So, data from Halifax suggests that UK prices have gone up by around about 200% over the last 20 years, whereas the main US stock market the SNP500, where a proportion of diversified pensions are likely to be invested, have generated total returns of over 400% over the same period according to Investopedia. Of course, we should bear in mind that past performance isn’t indicative of future performance, and the value of investments can go up as well as down. But is this the reason why you’re so keen on pensions over property?

RACHAEL: Investment growth is one of the key aims of investing. You want your pension and any savings to grow over time. But with pensions, that’s only really part of the story, there are lots of incentives. So, if you have a workplace pension, your employer, as you said, with auto-enrolment, they’re obliged to contribute. So, you’re effectively getting free money from your employer, which is why you shouldn’t opt out unless extenuating circumstances and you really, really have to. But your pension will grow a lot faster if you remain opted in. And then there’s also tax relief that you get in your personal contributions. So, most basic rate taxpayers will get a 25% tax top up. So, if you paid £100 into your pension, the government would add £25 pounds, you’d have £125. So over time with regular contributing that just snowballs. It just grows and grows, and then you also get tax free withdrawals when it comes to taking out your pension. So, from the age of 55, the first 25%, you can withdraw as a tax-free lump sum and then there are also incentives when it comes to passing on your pension. So, pensions sit outside your estate for inheritance tax purposes, which means unlike the cash in your bank account, you don’t have to pay tax on it in the same way. So, with a pension, if you pass away before you’re 75, your beneficiaries can in most circumstances, they can take that tax-free. And then if you’re over 75, that your beneficiaries will pay tax at the nominal rate. And that’s with defined contribution pensions, which most modern workplaces and personal pensions are.

PETER: So, Rachael, we know that about a quarter of self-employed people currently aren’t paying into a pension, and there’s a lot of them. So, what advice would you have for that group of people?

RACHAEL: So, if you’re self-employed, unfortunately, won’t have a workplace pension, which your employer will be contributing into. But you do have two options. So, if you’re making personal contributions to your pension, you will still qualify, usually for government tax relief. So, for every £100 pounds you put in, the government will put in 25. So, it’s 25% tax top up that you’ll get. If you’re the Director of limited company, you can also contribute directly into your pension as an employer and usually these contributions are tax deductible.

PETER: Yeah. Is it going to help you reduce your corporation taxes, essentially?

KEN: Well exactly, this is actually a really important point, because a lot of people I know who run - lots of my friends are entrepreneurs now. You tend to hang around people who do what you’re doing or something quite similar. A lot of them don’t actually know that within a limited company, if you’re registered as a limited company, you can set up your own pension, and your business can contribute into that and it’s 100% tax deductible up to around £40,000 and this is quite good.

The case for investing in your property

PETER: So, Abba, I was going to ask you, when you invested in pensions and global markets, do you typically get a little bit of diversification, because you’ve invested in different areas? With property, it’s almost as though you’re putting your eggs all in one basket, are there any other risks in the property side of things that you can think of or that come to mind that you think might be important to this conversation?

ABBA: I mean, I guess if you look at it holistically, and you see property as a long-term investment, it’s a pretty darn safe, long-term investment in this country. So obviously, particular postcodes haven’t all seen the same kind of increases, but if you’re looking to borrow over 25 years, for most people in those 25 years, that house that they live in, has grown in value, if you kind of look retrospectively. As you said, I said it’s 100% every 10 years. I think you said that Halifax said it was 200% in 20 years. So yeah, property is a reasonably safe investment. Obviously, that does mean you’ve got to keep up your mortgage repayments and that kind of stuff and coming with that comes, you know, if the roof blows off or the boiler blows up, that becomes your responsibility. So, having your emergency fund is pretty important. And obviously picking the right area with the right kind of school because I guess the other thing that’s quite interesting about property is we have this notion of a property ladder in the UK where you buy your first house and then you buy your next house and it’s bigger and of course, that very notion costs you a lot of money. Be it more re-mortgaging costs, conveyancing costs, legal work costs and obviously stamp duty. So I guess like if I was going to give someone advice, which I’m not allowed to do, but buy the biggest house that you can in the best area that you can and then try and never move, and then put that money that you would have paid on stamp duty to the next house into overpaying your mortgage or into your pension. But don’t keep moving because it costs a fortune.

PETER: Thank you everyone for being here and contributing to this debate today and I hope that if you’ve been listening to this, you found this useful. If you do want to access any of the data or any of the articles or resources that we mentioned in today’s episode, you can find links to those in the show notes to this podcast. A final reminder that anything that we’ve discussed on this podcast should not be regarded as financial advice. Again, with investing your capital is always at risk.

Thank you so much for listening and as you know, we love to hear your feedback and thank you to everyone who has given us feedback already. We always encourage you: do not hold back whether your feedback is good or bad, we do need to hear it. And if you have any questions about pensions, you can get in touch with us at the Pension Bee team. You can email either podcast@pensionbee.com. That’s podcast@pensionbee.com or you can use the Twitter handle at @PensionBee. We’ll be back next month. In the meantime, keep saving and stay pension confident.

Catch up on episode 3 and listen 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.