Twice as many workers think pensions are a better bet than property for retirement saving
Nearly one in three who don’t save into pensions say other financial priorities mean they can’t afford to
Twice as many workers see occupational or personal pensions as a safer way of saving for retirement than property investment, new analysis* from Handelsbanken Wealth & Asset Management shows.
More than half (57%) of retirement savers who are still working believe pensions are the most secure retirement saving method, compared with 25% who chose property and one in seven (14%) who opted for ISAs, stocks and shares and saving accounts, according to Handelsbanken Wealth Management & Asset Management’s analysis of the latest Government data.
Those relying on property as their biggest source of income in retirement are even fewer – just 11% of those who are not retired expect it to be their most important source of income when they stop working. That compares with 46%, who think their main income will be from their occupational or private pension.
Some 23% believe their State Pension, benefits, or tax credits will be their largest source of income, while 12% think it will be their savings, investments, earnings, income from a business or sale of a business.
The data shows the number of people saving into pensions has risen to a new record high of 21.8 million after an increase of 40% – or 6.1 million – in the past decade, with most of this growth coming from new savers into defined contribution pensions.
Auto enrolment, which was launched in 2012 and made enrolment into workplace pensions automatic, has boosted the number of defined contribution pension holders to 9.9 million from 2.8 million, while the number of savers with defined benefit – or final salary – schemes has grown by 1.5 million to 8.8 million.
That has cut the number of people below State Pension Age who do not have a workplace or private pensions by 14% or 2.6 million in a decade, but there are still major issues for those who do not contribute. Nearly a third (29%) say they have too many other expenses, bills and debts or simply cannot afford a pension, while more than half (54%) say their income is too low, they are not working, or are still in education.
Christine Ross, Head of Private Office (North) and Client Director at Handelsbanken Wealth & Asset Management said: “It’s great to see confidence in pensions growing, with people rating them as the best way to save for retirement. More importantly, the number of people who are saving into pensions is increasing.
“It’s vital to use all of the tax-efficient options available to create a flexible retirement plan, as well as trying to start saving as early as possible, with the earliest savings having the longest period of time to grow.
“Employers are now obliged to make contributions for their staff, which helps many savers get on the retirement planning ladder. Some company pension schemes even offer additional ‘matching’ contributions if the employee pays more than the minimum. That can be as good as a pay rise and the money will grow, tax free, in the pension scheme for many years.”
Company pension schemes of course do not apply to the self-employed – and Handelsbanken Wealth Management & Asset Management’s analysis shows there is a greater reliance on property for retirement among those who work for themselves.
More than two-thirds (69%) of over-55s below State Pension age own a property, but that rises to 81% among the self-employed in that age group. And 25% of those that are self-employed in this age bracket own other properties in addition to their home compared to just 15% of those who are employed.
Financial expert explains the money-saving trend taking TikTok by storm
‘Cash stuffing’ is a money-saving technique currently blowing up on social media.
With the cost of living crisis impacting the majority of the UK, Gen-Z and Millenials are looking for new ways to save. Within the past year, Google searches for the term ‘cash stuffing’ have increased by 274% (Source: Google Trends/Glimpse) and the TikTok hashtag has generated over 498 MILLION views to date.
Dan Whittaker, Personal Finance Expert at CashLady.com, has released comments explaining the trending method of saving at home, how it works, along with the downsides:
What is ‘cash stuffing’?
“Cash stuffing is a method of saving money by physically withdrawing money from your bank account and organising it in a folder system.”
“Using a personalised folder containing several labelled envelopes, savvy savers divide their monthly outgoings into categories, label each envelope with a category, then select a budget for each category and put the allocated amount of cash into the envelope.
“For example, if your monthly take home pay was £1,000, you would make your essential payments as normal, such as rent, mortgage and bills. Then, you split the remaining money into several categories within your folder.
This could be for things like ‘the weekly shop,’ ‘birthday funds,’ ‘socialising,’ ‘holiday savings’ or ‘pocket money for kids.’ Each category and its envelope would contain the exact amount allocated in your budget.”
“The technique is also sometimes referred to as the ‘cash envelope system’.”
“At the end of the month, you can see clearly how much money you have spent in each area and track it on a spreadsheet. You can then readjust your budgets for the next month to stay on track. If you’re lucky enough to have funds left over, these should be moved into a separate folder which acts as bonus savings for whatever your ultimate saving goal is.”
Why does it work for some people?
“This method of saving can be a great way to keep you motivated to achieve your savings goals. Breaking down larger savings goals into smaller monthly targets makes the task of saving less overwhelming, and being able to literally see the money saved each month can lead to a greater sense of achievement.”
“Also, seeing your money physically dwindle can make you more aware of the current state of your finances. Using Apple Pay, Paypal or even online banking can sometimes feel as though you aren’t actually spending money as there is no physical cash exchanged. With cash stuffing, you have a visual representation of your earnings and outgoings which can lead to a greater sense of awareness of your finances; when you see what you’re spending, you think more about what you’re spending.”
“This is perhaps why the method is particularly popular amongst young people, who have been brought up using online banking and are seeking a new way to view and manage their money.”
“Another bonus with this method is that you’re avoiding the risks that can come with credit cards or overdraft fees. Avoiding credit cards altogether stops those prone to overspending from racking up debts, as once your monthly budget is gone, it’s gone.”
What are the downsides? “Security is the biggest downside. When your money is locked away in your bank it is protected by the banks security systems and protected by schemes such as the Financial Services Compensation Scheme.”
“However, with your money living outside of your bank in cash form, it may be more vulnerable to theft, loss or damage (for instance from fire). If this were to happen then you would essentially have no recourse to recover that money. If you are interested in this technique, investing in a safe or something similar would be advisable.”
“You also aren’t earning any interest on your money while it is not deposited in a bank, building society or other savings scheme.”
How can I do it?
“If you want to give Cash Stuffing a try then firstly, you need to think about what you typically spend money on. Dividing your usual spending into categories will help you to start your envelope system. Spends such as shopping, dining out, entertainment, petrol, gifts and groceries might be the most consistent monthly costs to begin with.”
“Then, think of your longer-term savings goals. Assign an envelope for this, where you can start to deposit any spare change at the end of each month. This could be for a car deposit or saving for a renovation or holiday for example, but having a specific goal is a great way to keep you motivated. Having these additional folders means you’re always allocating some money to long-term goals.”
“Next, you need to work out how much money to assign to each category. If you know you spend too much on socialising, then lower your budget in that category, and so on. After you’ve budgeted, it’s worth creating a spreadsheet to track your spending, simply writing down how much you allocated and then spent that month. This creates an awareness of your spending habits and helps see where you went right and where you could cut back. Any leftovers can be added to your long-term envelopes to encourage you to keep going.”
“The important thing is to only spend what is in that envelope. Restrict your spending to only using the allocated amount on each category and you should have savings in no time.”
A report by leading UK data scientists has revealed that the over-50s are being hit hardest by the current financial crisis and could face a lifetime of financial insecurity.
That’s according to new research from the University of Edinburgh’s Smart Data Foundry, supported and funded by abrdn Financial Fairness Trust.
According to the report, economic inactivity rates have risen a third amongst the over 50s since 2019, and people aged 50-54 face double the financial vulnerability risk than those aged 70-74.
Findings reveal that people in their 50s and 60s are facing the ‘perfect storm’ of circumstances including redundancy, ill health or caring commitments combined with a lack of savings and pension provisions.
To offset this loss of income, many people are being forced to withdraw lump sums from their pension pots to deal with pre-retirement income shocks.
And with the majority of pension pots worth under £30,000, this is causing knock-on issues with income tax and entitlement to benefits. Worryingly, the research also identified that those people who do cash in their pension pots early are 1.75 times more at risk of financial vulnerability in the future.
To tackle this, Smart Data Foundry is calling on the Department of Work and Pensions to act now to reduce the risk of pension assets being spent before retirement. It recommends an increase to the current capital limit of £16,000 for means tested benefits and, for those on Universal Credit, the reform of the Support for Mortgage Relief (SMI) loan facility by removing the zero earnings rule.
Chair of Smart Data Foundry,Dame Julia Unwin, explains: “We are seeing a pattern of people in their early to mid-fifties going from being in positions of comfortable, middle-aged breadwinners eyeing their future retirement over the horizon, to a generation suddenly finding themselves facing long-term financial hardship.
“A combination of being unable to secure viable work, confused messaging over pensions, little by way of state aid, and the savage cost-of-living rises resulting in many making decisions that could have long-term negative consequences.
“With this report and our key recommendations, we are calling for UK Government to intervene to protect and support the most vulnerable before it is too late. If they don’t act now, we will undoubtedly see even bigger problems in the years ahead. Data doesn’t lie; the evidence is there – older workers are at very real risk of financial vulnerability, but it is not yet too late to act.”
The research study also uncovered a widespread lack of understanding about the benefits system, confusion about claims processes, and hardship arising from payment frequency. To improve the transition to retirement, the report calls for increased government investment in the Pension Wise guidance service and expansion to include the state pension.
According to the findings, older workers are encountering barriers to returning to work, including lack of digital skills, unavailability of flexible working, lack of specific government initiatives, ageism, psychological barriers, and retraining needs.
The longer the unemployed worker remains out of work, the harder it is for them to find a suitable position and the greater their risk of falling into forced retirement.
The report calls for a government-funded employment programme targeted at those who need support in changing careers, starting from the first day of unemployment for the over 55s.
Lead researcher Dr Lynne Robertson-Rose from the University of Edinburgh added: “We set out to understand the financial vulnerability amongst those in their 50s and 60s and have been surprised by the bleak picture that the data paints.
“Any disruption in earning capability in the decade before the state pension is forcing older workers to draw down on savings earmarked for retirement with little ability to top up the pot, leading to the risk of financial vulnerability becoming lifelong.
“We have access to rich data supplied to Smart Data Foundry by UK financial institutions and these insights have furnished us with the information that enabled us to make policy recommendations. It also flags opportunities for the financial services and fintech sector to innovate in order to help individuals better manage their finances.”
Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust, added:“Making decisions about your pension is tricky to navigate, and for those on lower incomes, advice is too expensive.
“The Government needs to improve access to advice on pensions planning for those on lower incomes to avoid a living standards catastrophe.”
MORE SUPPORT NEEDED, SAYS SCOTTISH FINANCE SECRETARY
The most vulnerable households across Scotland will receive support of over £1,000 this year, including a new one-off £650 cost of living payment
Universal support increases to £400 across Great Britain, as the October discount on energy bills is doubled and the requirement to repay it over 5 years scrapped
This new £15 billion support package is targeted towards millions of low-income households and brings the total cost of living support to £37 billion.
New temporary Energy Profits Levy on oil and gas firms will raise around £5 billion over the next year to help with cost of living, with a new investment allowance to encourage firms to invest in oil and gas extraction in the UK.
Millions of households across the UK will benefit from a new £15 billion package of targeted UK government support to help with the rising cost of living, the Chancellor announced yesterday.
The significant intervention includes a new, one-off £650 payment to more than 8 million low-income households on Universal Credit, Tax Credits and legacy benefits to be made in two tranches starting in the summer, with separate one-off payments of £300 to pensioner households and £150 to individuals receiving disability benefits – groups who are most vulnerable to rising prices.
Rishi Sunak also announced that the energy bills discount due to come in from October is being doubled from £200 to £400, while the requirement to pay it back will be scrapped. This means the vast majority of households will receive a £400 discount on their energy bills from October.
The new Cost of Living Support package will mean that the most vulnerable households in Scotland will receive over £1,000 of extra support this year.
To ensure there is support for everyone who needs it, Mr Sunak also announced a £500 million increase for the Household Support Fund. This brings the total Household Support Fund to £1.5 billion.
To help pay for the extra support – which takes the total direct government cost of living support to £37 billion – Mr Sunak said a new temporary 25% Energy Profits Levy would be introduced for oil and gas companies, reflecting their extraordinary profits. At the same time, in order to increase the incentive to invest the new levy will include a generous new 80% investment allowance. This balanced approach allows the government to deliver support to families, while encouraging investment and growth.
The Chancellor of the Exchequer Rishi Sunak said: ““I know that people in Scotland are anxious about keeping up with rising energy bills, which is why today we have introduced measures which will take the support for millions of the lowest income households over £1,000.
“As a nation we have a responsibility to help the most vulnerable, which is why this support is mostly targeted at people on low incomes, pensioners and disabled people. But we understand that all households in Scotland will be concerned about the rise in energy costs this Autumn, so every household is set to get £400 off their energy bills from October, with no repayments necessary.
“It is right that companies making extraordinary windfall profits from rising energy prices should contribute, and I’m introducing a temporary energy profits levy to help pay for this support, while still encouraging the investment that generates jobs in Scotland.”
Scottish Secretary Alister Jack said: “Global issues are causing real pressures in the cost of living for UK families. We understand how tough it is at the moment for many households, which is why the Chancellor has today announced a further £15 billion support package.
“A total of £400 per household towards fuel bills will help protect families from rising energy costs. Cash payments of £650 for low-income households on means tested benefits will target support at the most vulnerable in our society at this difficult time. This comes on top of our existing £22bn support package.
“Some of these measures will be paid for by a temporary levy on oil and gas companies – one which incentivises investment in the UK’s energy security.”
There is now more certainty that households will need further support, with inflation having risen faster than forecast and Ofgem expecting a further rise in the energy price cap in October.
So as part of the UK government’s targeted support, the Chancellor announced that around eight million of the lowest income households on Universal Credit, Tax Credits, and legacy benefits will receive an automatic £650 cost of living payment in two instalments via the welfare system this year.
Yesterday’s announcement is on top of the government’s existing £22 billion cost of living support which includes February’s energy bills intervention and action taken at this year’s Spring Statement including a £330 tax cut for millions of workers through the NICs threshold increase in July and 5p cut to fuel duty.
Energy Profits Levy
Surging commodity prices, driven in part by Russia’s war on Ukraine, has meant that the oil and gas sector have been making extraordinary profits. Ministers have been clear that they want to see the sector reinvest these profits in oil and gas extraction in the UK.
In order both to fairly tax the extraordinary profits and encourage investment, the Chancellor announced a temporary new Energy Profits Levy with a generous investment allowance built in. This nearly doubles the tax relief available and means the more investment a firm makes, the less tax it will pay.
The new Levy will be charged on oil and gas company profits at a rate of 25% and is expected to raise around £5 billion in its first 12 months, which will go towards easing the burden on families. It will be temporary, and if oil and gas prices return to historically more normal levels, will be phased out.
The new Investment Allowance, similar in style to the super-deduction, incentivises companies to invest through saving them 91p for every £1 they invest. This nearly doubles the tax relief available and means the more a company invests, the less tax they will pay.
The government expects the combination of the Levy and the new investment allowance to lead to an overall increase in investment, and the OBR will take account of this policy in their next forecast.
The Levy does not apply to the electricity generation sector – where extraordinary profits are also being made due to the impact that rising gas prices have on the price paid for electricity in the UK market, which has also been making extraordinary profits partly due to record gas prices but also due to how the market works.
As set out in the Energy Security Strategy the government is consulting with the power generation sector and investors to drive forward energy market reforms and ensure that the price paid for electricity is more reflective of the costs of production.
The Chancellor announced yesterday that the Treasury will urgently evaluate the scale of these extraordinary profits and the appropriate steps to take.
During the announcement, the Chancellor also set out the government’s strategy to control inflation through independent monetary policy, fiscal responsibility, and supply side activism – a plan he said that should see inflation come down and returning to its target over time.
Finance Secretary Kate Forbes has welcomed the short term action announced by the Chancellor of the Exchequer, but warned more support is needed for households and businesses as the cost of living crisis worsens.
Following calls from the Scottish Government, the UK Government has taken steps to ensure that cash grants, rather than loans, are provided to those on lowest incomes. Ms Forbes has also cautiously welcomed the decision to introduce a Windfall Tax on energy companies benefiting from significant profits but commented that it means Scottish industry is disproportionately funding interventions across the UK.
Responding to the Chancellor’s statement, Ms Forbes has said UK Ministers should have acted earlier and gone further to provide more support that would make a real long term impact, including following the Scottish Government’s lead by doubling the Scottish Child Payment to £20 per week – which is due to increase to £25 from late 2022 helping lift an estimated 50,000 children out of poverty in 2023-24.
Ms Forbes said: “Many households will be relieved to see the support belatedly announced today, but we still need a long term solution to the cost of living crisis and reassurance that the UK Government is going to tackle long term inequalities rather than provide one-off bursts of crisis support.
“Rather than listen to our plea for a comprehensive funding package that fully addresses the unprecedented rise in the cost of living and uses the full £30 billion of fiscal headroom, this piecemeal approach makes it highly likely that more support will be needed later when energy prices rise significantly in the autumn.
“There is also a severe lack of support for businesses – many of them are still struggling to recover from the pandemic and now face crippling increases in energy costs and the damaging impacts of Brexit on supply chains and the labour market. Without urgent economic support there is a real risk that the UK economy is heading for a recession.
“Inflation is at its highest levels in 40 years and the UK Government’s failure to fully invest in increasing incomes, tackling inequality and boosting economic competitiveness will only risk pushing households into further debt and poverty
“The UK Government has almost £30 billion of fiscal headroom, spending only half of this during a cost of living crisis does not go far enough, especially when a further £5 billion from the Windfall Tax will be raised.
“The introduction of a windfall tax is a start, but as a stand-alone measure this means Scottish industry is carrying the weight of UK-wide interventions.
“The removal of the £20 Universal Credit uplift last year was a hammer blow to hard pressed families and the Chancellor’s failure to restore it and increase it to £25 only places a disproportionate burden on the shoulders of those who need help most. The statement was also worryingly silent on public-sector pay with no related consequential funding, when the lowest paid need urgent assurance in the face of rising inflation.
“The refusal to reverse the National Insurance increase implemented in April and temporarily suspend VAT on household energy bills will also cost families hundreds of pounds annually at a time when their budgets have never been more squeezed.
“The Scottish Government has already taken action to support people, communities and businesses as much as possible, with almost £770 million per year invested in cost of living support. We have increased eight Scottish benefits by 6%, closer to the rate of inflation, and introduced a range of family benefits not available elsewhere in the UK.”
Commenting on the government’s cost of living support package announced today (Thursday), TUC General Secretary Frances O’Grady said: “Unions have repeatedly called for an Emergency Budget to help families, and a windfall tax on energy companies.
“The Chancellor should have acted far sooner after his inadequate Spring Statement. His dither and delay has caused unnecessary hardship and worry for millions.
“While today’s intervention is badly needed, we should have never been here in the first place.
“Years of attacks on wages and universal credit have left many households on the brink.
“The government still doesn’t have a plan for giving families long-term financial security.
“With energy bills rising 23 times faster than wages we urgently need to get pay packets rising and to pay universal credit at a permanently higher rate – not just a one-off boost.
“That’s the best way to protect livelihoods and to support the economy.”
The provider paid more than £3.5 billion in claims over the past five years
Covid-19 claims paid out last year amounted to over £73 million, double the amount paid in 2020
Nearly 17,000 customers and their families benefitted from an average pay out of £47,243
Project Smile launches to support children going through a difficult diagnosis
Legal & General paid out a record 46 personal protection claims every day in the UK during 2021, totalling £797.9 million – an increase of £33.9 million from 2020 – and benefitting 16,890 customers and their families.
As the UK’s number one individual Life Insurance provider Legal & General has paid out more than £3.5 billion in claims over the past five years across its Life, Critical Illness Cover (CIC), Terminal Illness Cover (TIC) and Income Protection (IP).
Overall, the provider paid 97% of individual protection claims with an average pay out of £47,243.
Of the small percentage not paid, almost nine in 10 were because of ‘deliberate or reckless misrepresentation’. Over 30% of misrepresentations were due to lifestyle factors that should clearly have been in the customers knowledge, with the majority of these being linked to alcohol.
Legal & General continues to work closely with its partners and distributors to help minimise misrepresentation and do more to explain how insurance claims work so it can support even more customers in 2022.
As in 2020, the pandemic impacted the 2021 claims data; with almost one in seven life claims Covid-19 related. Legal & General paid out 1,579 Covid-19 life claims at an average of £46,769 per claim, making up a combined total of almost £74 million – over £34.6 million more than last year.
The difference in claims for men versus women when it came to Covid-19 related deaths is stark. Only 35% of Life Insurance claims came from women, compared with 65% from men. Legal & General’s figures continue to reflect those from the Office for National Statistics that show men are more likely to pass away from Covid-19 than women2. In contrast, 60% of Legal & General’s overall Life Insurance claims are for men, again indicating an increase when looking at Covid-19 claims specifically.
Income protection continues to play an important role
All IP products include Legal & General’s Rehabilitation Support Service. It gives customers access to an in-house team of healthcare professionals who offer wide-ranging physical and mental health support at no extra cost.
Project Smile
This year saw the launch of Project Smile, an initiative to support children going through a difficult diagnosis.
For every claim relating to a child’s illness paid, the provider sends a gift to the child to help bring a smile to their face. Gifts are chosen according to the preferences of the child and can include anything from a voucher to a Peppa Pig toy.
David Banks, Director of Claims and Underwriting said:“Paying claims is core to what we do. As we continue to come back from Covid-19, we remain focused on giving our customers and their loved ones financial support when they need it most. But more has to be done to tackle misrepresentation.
“At Legal & General we’re working closely with partners and distributors to help make the underwriting process as transparent and streamlined as possible. We hope that increasing knowledge around the lifestyle and general health information required will minimise misrepresentation and help us support even more customers in their moment of need.
“We’re proud to have paid out more than £797million in claims last year, but it’s the personal impact behind the figures that’s most important. We know an injury or illness affects the whole family, none more so than when it happens to a child. That’s why we have launched Project Smile.
“Our assessors get to know the families throughout the course of a claim – we wanted to go beyond just dealing with the paperwork and show that we are thinking of them through what is likely to be the most challenging time of their lives.”
New research released finds defined contribution (DC) pension schemes, which do not automatically offer a secure, guaranteed income for life, can lead to poor outcomes for those on lower incomes.
Since the introduction of ‘pension freedoms’ in 2015, the vast majority of consumers are opting against a guaranteed income, resulting in them facing significant threats to their retirement security.
Researchers from the University of Birmingham, supported by abrdn Financial Fairness Trust, conducted in-depth interviews with DC pension consumers and gained insights from industry stakeholders to shed light on the experiences, risks and challenges of pension decision-making in the new retirement landscape.
They concluded that the existing system disadvantages people who are already vulnerable to poor pension outcomes.
Those from more disadvantaged backgrounds are less likely to have access to networks of friends and family who can help them with their decision-making. In addition, the support available for those without access to regulated financial advice (typically those with smaller pension pots and/or low-to-middle incomes) remains largely limited to written information and checklist-based guidance.
This means many people do not have access to the kind of support they need – i.e. a personal recommendation on the best course of action.
Researchers found:
1. Consumers feel confused and overwhelmed by the DC withdrawal decision. Many people feel ill-prepared for making the ‘right’ decision about accessing their DC pension savings. They are often overwhelmed by its complexity and feel they need more help in the form of personalised advice, however, the cost of this advice is unaffordable for those on lower incomes.
2. Consumers (particularly non-advised consumers) do not know who to trust when they need support with their decision. This leads to poorer outcomes for those from less affluent backgrounds, who do not have social networks of people who can recommend trustworthy advisers.
3. Consumers have to manage high levels of confusion and uncertainty about the future when making a decumulation decision. Consumers are aware they have to manage multiple risks when deciding what to do with their DC pension pot. This includes several highly unpredictable aspects of the future, such as their health and longevity, the need for care, and stock market performance. This ‘individualisation’ of risk creates a sense of insecurity and adds to the discomfort and difficulty of the decision-making process.
Researchers have called for government, regulators and employers to do more to protect low-income DC scheme holders.
They make the following recommendations:
Better value products – Government and regulators must ensure industry works harder to meet the needs of people on low-to-middle incomes by creating more flexible, better value products. For example, by introducing a charge cap for DC investment pathways and drawdown arrangements to prevent consumers paying unnecessarily high charges, and help rebalance some of the responsibility for achieving good consumer outcomes
Price-capping – There should be Government-funded, price-capped, financial advice services so that lower income people can access regulated financial advice to support their pension decisions.
Reducing risk – Access to affordable, trustworthy regulated financial advice should be expanded as an option for all DC pension consumers. Through the introduction of pension freedoms, Government has created a situation where individuals are taking on too much responsibility and risk for securing an adequate retirement income. Government therefore needs to redress this balance by taking responsibility for providing appropriate protection and support. More regulation is needed of DC pensions to ensure value for customers.
Dr Louise Overton, Assistant Professor in Social Policy and Director of CHASM from the University of Birmingham, said: “Seven years on from the introduction of pension freedoms, too many people are facing poor retirement outcomes because industry and government aren’t doing enough to protect them.
“Our research shows that Pension Wise (set up as ‘a first port of call for DC consumers, offering free and impartial information and guidance) does not offer adequate support, and those without access to good quality regulated financial advice (those with smaller pension pots and lower incomes) are particularly at risk of adverse outcomes.
“We call on government, industry and the regulator to expand the scope of money guidance, widen access to regulated advice, and prioritise product innovation.”
Karen Barker, Head of Policy at abrdn Financial Fairness Trust, said: ““The current ‘one size fits all’ system is not suitable for those on lower incomes. Whilst the new pension freedoms introduced by the government have benefitted many, this research shows they cause a great deal of confusion.
“It’s not practical to expect those with smaller pension pots to pay a lot of money for advice on how to manage those pots.
“However, it’s vital that those on low-to-middle incomes are properly advised if we are to avoid a return to high levels of pensioner poverty.”
As the impact of the cost of living crisis hits home for millions of people, Which? shares tips to help consumers shave money off their tax bills.
There are lots of ways to reduce your tax bill legally, whether you’re an employee or self-employed, a landlord, investor or pensioner. Simple checks can boost your take-home earnings with minimal effort. There are also tax reliefs and government schemes that can help.
Check your tax code Consumers who pay tax via Pay As You Earn (PAYE) should check if they’re on the correct tax code, to be sure they’re not paying more tax than necessary. Those on the incorrect code might be entitled to pay less tax in the coming months, or receive a rebate from HMRC for previous overpayments. Someone might find themselves on the wrong tax code, or an emergency tax code if they’ve started a new job and their new employer doesn’t have a P45, if they’ve recently had a change in salary, or if they’ve started or stopped taxable state benefits. For example, basic-rate taxpayers given an emergency tax code that excludes their personal allowance could pay an extra £2,514 in the 2022-23 tax year.
Consumers should check their tax code each year, or after changing jobs, to make sure it’s correct for their situation. Find out the most common ones in Which?’s guide to understanding your tax code.
Check if you qualify for any benefits Workers on a low income with less than £16,000 collectively in any savings and investments may be able to qualify for Universal Credit, which is due to replace other legacy benefits like tax credits by 2024. Payments will vary depending on people’s circumstances. Those with children, for instance, could receive up to 85 per cent of their childcare costs, up to £646 a month for one child, or £1,108 for two children.
Every year more than £15bn goes unclaimed from the Treasury from households eligible for benefits, meaning more than seven million UK households could be missing out on benefits and other help like council tax discounts. Which? suggests checking what might be available to claim by entering details about you and anyone else in your household into the entitled to calculator.
Pay into a pension scheme Employees can contribute to their employer’s pension scheme from their gross pay, before any tax is charged. The government then tops up the pension contribution with tax relief, providing a free bonus for saving for retirement. The effect of tax relief is that a contribution of £100 that would have been taxed at 20 per cent, and therefore worth £80 net, is paid into your pension fund without any deduction – so it’s worth the full £100.
Be sure to meet the tax return deadline to avoid a £100 fine Around 12 million people need to submit a self-assessment tax return each year. Missing the claim deadline is a costly and easily avoided mistake. Those making an online submission have until 31 January 2023 to send in their 2021-2022 return, but for paper submissions the deadline is earlier, 31 October 2022. Missing the deadline incurs an automatic penalty of £100, even for those who don’t owe any tax. Use the Which? tax calculator to tot up your return and submit it directly to HMRC.
Reclaim overpaid taxes Non-taxpayers and those whose income has unexpectedly fallen during the year might have been taxed more than they should have done, as HMRC assumes your personal allowance is equally used each month. To reclaim, fill out form R40 from HMRC, or call them.
Claim tax-free childcare Under the tax-free childcare scheme, parents can claim back 25 per cent of their childcare costs up to £500 every three months. There are certain eligibility criteria, including having a child under 11 and earning less than £100,000. To get started, parents need to set up an online account, which can be used to manage payments to their childcare provider. For every £8 you deposit, the government will pay in £2, up to the value of £500 every three months, or £1,000 if a child is disabled.
Maximise your personal savings allowance In 2022-23, savers can earn £1,000 of interest on savings tax-free if they’re a basic-rate taxpayer. Higher-rate taxpayers have a tax-free allowance of £500. This means they only pay tax on savings income that exceeds this threshold. This will no longer be deducted automatically by the savings provider. If tax is due, you’ll need to pay it via self-assessment or have it deducted via PAYE. Keep in mind that you won’t have a savings allowance as an additional rate (45%) taxpayer.
Use the starter rate for savings If your income from a job or pension is below £12,570 in 2022-23, but you earn income through interest on savings, you may also qualify for the starter savings allowance. Any interest you earn up to £5,000 is tax-free. This will be in addition to your personal savings allowance, meaning you could earn as much as £18,570 before paying tax.
Benefit from lesser-known allowances Consumers can keep hold of a bigger chunk of their earnings by claiming all the tax allowances they might be entitled to. Marriage tax allowance and the Rent-a-Room scheme can save significant sums, yet relatively few people are aware of them. For example, those renting out a room in their home can take advantage of the Rent-a-Room scheme, which means they can earn up to £7,500 tax-free. Marriage allowance benefits couples where one partner earns less than the personal allowance, and the other is a basic-rate taxpayer. Married couples or those in a civil partnership can transfer a 10 per cent personal allowance from the lower-earning partner to the higher earner. In 2022-23, £1,260 can be transferred, potentially saving you up to £250.
Get a reduction on your council tax if you’re a low earner Those on low incomes may be eligible for a council tax reduction of up to 100%. Each local authority has different criteria for who is eligible to claim council tax reduction and the size of the reduction depends on income, savings and whether the claimant lives alone
Those who don’t qualify for a discount themselves, but share a property with a second adult who does (and is not their spouse or civil partner), might be able to claim a second adult rebate.
Reena Sewraz, Which? Money Expert said: “Many people are feeling financial pressure at the moment as soaring energy and food prices, as well as tax hikes, have put a huge strain on household budgets. However, there are steps you can take to save money on tax.
“It is always worth doing a quick check to make sure you’re on the right tax code – if this is incorrect you could be eligible for reduced tax or a refund from HMRC. You can also easily check if you’re eligible to claim additional allowances and benefits from the government, such as marriage tax allowance, universal credit, or a discount on your council tax.
Giving up a pack of cigarettes a day could save you up to £4,197 a year – the price of a family holiday abroad.
Cutting out that weekly pack of cigarettes could save you £598 a year, or £2,990 over five years.
Quitting for good could save you up to £41,975 over ten years – equivalent to a 20% deposit on a new home.
You could be saving up to £4,197 a year by giving up a pack of cigarettes a day according to new research, with savings of £598 a year for less frequent smokers.
Vaping experts over at IndeJuice calculated how much money you could be saving based on the average UK cost for a pack of 20 cigarettes over various timespans. They broke down how much you would save throughout your lifetime if you kicked the habit for good, as well as comparing what you could be spending the money on instead.
The research reveals that if you are smoking one pack of cigarettes per day at the average UK cost of £11.50 per pack, you would save £349.79 per month or £4,197 over the course of a year by quitting – the cost of a family holiday abroad for four people, the cost of running your car for ten years or paying for 11 years’ worth of gym memberships.
Someone who regularly smokes a full pack of cigarettes a day can expect to see staggering savings in the long run – banking up to £41,975 over ten years from quitting smoking. This is the equivalent of a 20% deposit on a £200,000 property, the price of a Porsche Cayman or nearly a kilogram of 24 carat gold.
For people who are only smoking a couple of cigarettes a day, the cost can still quickly add up. If you are smoking just one pack of cigarettes a week at the same average cost, you could still make savings of £598 a year, or £2,990 in your pocket over the next five years.
The money saved by quitting for one year, could cover the cost of a three-course meal for you and your significant other 11 times a year, the cost of nine weekly food shops or seven annual Netflix subscriptions.
A spokesperson from IndeJuice added: “Many smokers are already aware of the harm imposed on their body by regularly smoking, but it is easy to overlook the financial savings that could be made by choosing to quit for good.
“When looking at Google Trends data over the past five years, there has been a significant increase in people searching the term ‘quit smoking’ year on year, with the exception of 2021 where there was a 2.3% decrease in searches from the previous year.
“As we emerge out of the pandemic, it is important that we continue to reflect on the health benefits of quitting for good, and the long-term savings offer an additional incentive to do so.”
More than half of all cash savers (52%) don’t know what impact inflation will have on the real value of their cash savings over time, while 13% believe inflation will leave them better off
New research from Legal & General1 has found that despite inflation reaching record levels many people in the UK are not aware of its impact on their finances.The findings reveal:
More than half of all cash savers (52%) don’t know what impact inflation will have on the real value of their cash savings over time:
One in 10 (13%) incorrectly believe inflation will leave them better off
13% think the real value of their savings would stay the same
More than a quarter (26%) say they don’t know what impact inflation could have on their cash
Millions of savers (64%, the equivalent of 10.3 million) have taken no action on their savings, despite cash earning next to nothing in interest and inflation rising steeply. In fact, half of all savers (54%) currently keep their money in cash over the long-term.
The total cost of “saver inaction” in such an environment (6% inflation) could amount to £18 billion if this trend continues over the next five years2.
Savers currently have £136 billion sitting in cash ISA accounts on average interest rates of 0.26% per year3.
Legal & General analysis shows the impact of inflation for every £1,000 stashed away:
Inflation rate
Average £ lost overfive years
Time for savingsto halve
National cost of saver inaction overfive years
6%
£243
13 years
£18 bn
7%
£278
11 years
£21 bn
8%
£311
Under 10 years
£23 bn
Source: Legal & General, 2022
Emma Byron, Managing Director, Legal & General Retirement Solutions, said:“Inflation is at its highest rate for three decades and it’s worrying that savers don’t realise its eating away at millions of pounds sitting in low-interest paying accounts.
“Understanding the impact of inflation is crucial to understand how much money you have in real terms. Whilst it is essential to keep some cash in the bank for an emergency fund, savers might want to consider other options to make their money work harder.”
Three ways of protecting your savings from inflation
Tip 1: Work out how much to put aside as an easy-access emergency fund
The Money Helper4 service suggests that you should save for emergencies. As a rule of thumb, you’ll need enough to cover your essential expenses for three months.
You should be ready cover bills like energy, your mortgage, travel and food costs, so should the unexpected happen, you’ll be prepared.
And you’ll know exactly how much money you need to keep in cash (which can be hit by inflation), so you can start saving any extra income in more inflation-proof ways.
Tip 2: Get best the interest rate you can on your savings
Make sure that any cash savings you have are getting the highest interest rate possible.
These days you can switch savings accounts and ISAs relatively easily. But if you do find a higher rate, remember that they can quickly go down.
For example, it’s common for Cash ISAs to offer high rates for the first year. Those rates can drop dramatically after the first year. So always set a reminder to keep an eye on any new savings rates you find. You can find more information on most bank websites and compare interest rates on comparison websites.
Tip 3: Think about investing your money or topping up your pension to beat inflation
It’s important that consumers are aware of the long-term impact of their pension contributions, alongside the compound effects of investing.
So if you can stash your savings away for the long term, think about topping up your pension, or investing in a stocks and shares ISA.
People will understandably be feeling unsure about the future at this moment in time, but the key thing to remember is that investing is for the long term.
With time on your side, you can balance out the ups and downs of market volatility. And if you have an emergency fund, you might well be able to ride out any storms and leave your investments untouched. That’ll give them a chance to go back up in value again.
Personal Finance Expert at CashLady.com, Paul Wilson, has released eight tips to help save money during the warmer weather and longer nights.
We’ve all been there – at the first signs of summer, we rush to a beer garden with friends or splurge on picnic supplies without a second thought. However, with months of sunshine and lighter evenings to come, it’s important to not get ahead of ourselves and spend beyond our means.
There are lots of little things you can do to make your money go further as Daylight Savings begins and the days get longer, and you’ll soon find that you can budget effectively whilst still having fun.
1. Waste less food
With the warmer weather incoming, who doesn’t enjoy a spontaneous picnic in the park? However, over-buying food can lead to an increase in food waste. According to recycling charity WRAP, the UK throws away6.6 million tonnes of food waste a year- three-quarters of which could have been eaten.
Save your money and save the planet by packaging up any food you buy and repurposing it later as leftovers.
Stick firmly to use-by dates, but for items with best-before dates, trusting your taste and smell to determine food is still good to eat rather than rigidly sticking to the dates means your food stretches further, and so do your finances.
2. Round up your savings
One of the most commonly used methods of saving money is the ‘skimming’ method, where each time you get money into your account, you automatically ‘skim’ some off the top and deposit it straight into a savings account – acting as though it never existed.
Banking providers such as Monzo offer ‘pots’ where you can deposit money into separate locked away ‘pots’ and see your main funds separately. Throughout Daylight Savings, you could set a goal of depositing spare change into savings every time you spend, and by October you’ll be set for Winter.
3. Check your taxes
The tax year officially ends on the 5th of April, just one week after Daylight Savings begins, so now may be a good time to check your tax code with HMRC and ensure you are paying the right amount of tax.
If you’ve been overpaying on your tax for a period of time then you could be due a rebate, putting money straight back into your pocket.
4. Take advantage of the long nights
Instead of running home to escape the cold and curl up on the sofa, use extended daylight hours to enjoy the outdoors. You’ll save money on electricity by not running indoor lights and gadgets and benefit from the fresh air and sunshine.
After work, why not use these long nights to walk or cycle home if possible? Make use of the improved weather and save money on petrol, whilst also getting some easy exercise.
5. Keep track of your house’s heating
The return of Spring often brings with it sudden heat waves in stark contrast to freezing winter nights. Make sure that your thermostat has been adjusted for the weather, and that you’re not paying for automatic heating whilst you’re sweltering in the garden.
You can even go one step further and ensure that you’re getting the best possible deals with your energy provider by using comparison sites such as energyhelpline.com or uswitch.com.
6. Get cheap flights Hotter weather and longer nights will have you lusting after a getaway before too long, and the temptation to book a spontaneous holiday might grow. If this sounds like you, make sure you’re getting the best possible deals on your trip by using price comparison sites and flight alerts.
Skyscanner allows you to search everywhere in the world for the cheapest destination and compare flight prices.
Making use of websites such as lastminute.com makes all the difference in saving your money for the actual holiday.
7. Dress smart
A new season may have you yearning to shop for new season clothes, but ask yourself – do you need to? Upcycling your old clothes and re-inventing your previously loved styles could save big bucks on unsustainable ASOS orders.
If you decide you do need some new styles, then try shopping in your local charity shop. Places like the British Heart Foundation even stock old Pretty Little Thing stock for less than half the original price!
8. Save on nights out
An increase in socialising often leads to spending your money in pubs, bars and clubs. There are many ways to save when out partying, for example, only take cash on a night out.
This will stop you from tapping away on your card without really adding up what you’re spending. Use free ATMs and avoid buying rounds whilst you’re out to manage your budget effectively.
Paul Wilson is a consumer finance expert at Financial Conduct Authority authorised and regulated credit broker atCash Lady.com
