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The Guardian
05-07-2025
- Business
- The Guardian
How to manage your money in turbulent times, from savings to mortgages
It is understandable to be worried about your finances. The world seems to be lurching from one political crisis to the next, and each one has an impact on stock markets and prices. A recent survey found UK consumers are worried about a slowing economy, possible tax increases in the next budget and rising food costs. We asked experts how you should manage your money in an uncertain world. Stock markets around the world, especially in the US, were in flux earlier this year over Donald Trump's tariff plans. Things have settled down now but it is impossible to predict what shocks may be around the corner. If you hold stocks and shares – in an Isa or pension, perhaps – you may have been nervously checking their value. UK fund managers have been increasing their holdings in US companies over recent years, largely fuelled by the boom in tech stocks, so big moves over there have an impact here. However, experts say the most important thing to do is to not sell up out of panic. The analyst Dan Coatsworth of the financial advisers AJ Bell says: 'The worst thing people can do is to see troubling things in the news and then suddenly try to shift around their portfolio.' Markets have recovered in the past, he says, so patience is key. Where this advice may differ is if you need your money for something in less than five years – such as a wedding, university fees or a house purchase. Then you should look at how much risk you are taking, he says. Andrew Oxlade, an investment director at the fund management company Fidelity International, says this could mean switching some of your money away from the markets and into bonds. Bonds are issued by a corporation or country – the investor loans it money in exchange for a fixed rate of interest. They are typically bought through a fund. Many investment management companies offer funds that have a split between equities and bonds, such as Vanguard's Lifestrategy 80%. Gold, an investment that is often seen as a safe bet during times of crisis, has tripled in price over the past decade, and many investors now hold a small amount in their portfolios, Oxlade says, after years of poor performance. Investing does not have to mean buying bars or coins – Fidelity says the most direct way for most is through an exchange traded fund that tracks the price of gold. Interest rates in the UK can be affected by what goes on globally. The Bank of England is tasked with keeping inflation down. Before the war in Ukraine started, it had begun to put up rates, and as prices increased, it continued, raising them from 0.25% at the start of 2022 to 5.25% by August 2023, before holding them there for another year. The Bank has been reducing rates and is expected to make more cuts later this year, but the question is when. If you are planning to take out a new mortgage – either to buy a home or as a remortgage – you face a decision about whether to fix for the short or long term, choose a tracker or even to go on a bank's standard variable rate (SVR). Currently, the best-priced two- and five-year fixed deals have a rate of just below 4%. Nick Mendes of the brokers John Charcol says lenders are reducing rates at present largely because of falling swap rates, a key factor in how mortgages are priced. Swap rates reflect what the money markets expect to happen to interest rates in future. 'Fixed mortgage rates are more influenced by swap rates than the base rate itself, which means they are shaped by what markets think might happen in the future rather than what is happening today,' he says. Going on to a lender's SVR in the hope that fixed rates will improve later in the year is a risky strategy as the rates are high, at about 6.5%, and can change at any time and increase your monthly repayments. Tracker mortgages are also worth considering, Mendes says. These are linked to the Bank base rate. 'They tend to start lower than SVRs and often come without early repayment charges, which means borrowers can move on to a fixed deal later,' he says. Mendes says people who are remortgaging should not 'sit back and wait. Most lenders allow you to secure a new deal up to six months in advance, which is a smart way to hedge your bets,' he says. 'You can lock in a deal now as a safety net and still switch to something better if rates improve before the new deal begins.' For new buyers, Mendes says they should base decisions on what is affordable now rather than making assumptions about what may or may not happen in the future. 'The last position anyone wants to be in is having overstretched themselves on the assumption that they will be able to refinance on to something cheaper at the end of their fixed-rate period,' he adds. You are not tied to a rate until completion, so you should be able to switch if a better deal comes along. Savings rates could fall even before the Bank reduces the base rate, says Rachel Springall of the financial information site Moneyfacts, as account providers may decide that they have enough deposits for a certain product. 'If the whole market starts moving in one direction, you'll find that other peers will do the same because they don't want to put themselves too high up [in best buy tables],' she says. Until then, easy access and fixed-term rates are competitive, Springall says. The best rates this week for fixed one-year and two-year bonds are from Cynergy Bank (4.55% for the one-year and 4.45% for the two-year), while an easy access account from Chase offers 5%, although this includes a 12-month bonus and is a variable rate, so it could go down. There have been increases in the interest paid on fixed-rate bonds in recent weeks, she says. Anna Bowes of the financial advisers The Private Office says 'now is a really good time for a saver who has not been paying attention to their savings' as there is good competition in the market. If you have money in a variable-rate account it may be a good time to move it to a fixed rate. The tumultuous times that stock markets have been having since the start of the year will have had a direct effect on many people in the UK through their pensions. Often funds are heavily invested in US stocks, so the ups and downs there could be affecting your retirement saving. It is understandable if you are considering shifting money in your pension into other safer options such as bonds, says Helen Morrissey, the head of retirement analysis at the financial advice company Hargreaves Lansdown. However, unless you are cashing in your pension within the next five years, you should avoid reactions based on the international turmoil, she says. 'Over the course of your saving journey, you will hit several periods of market volatility and it's important to keep in mind that markets do recover over time,' she says. 'Making kneejerk reactions such as changing investment strategy has the potential to lock in losses as you miss out when markets do recover.' Workplace pensions are often invested in 'lifestyling' funds, which reduce the amount of risk as the holder gets older by shifting from equities to bonds. So if you are approaching retirement this may be happening automatically. If your fund has been hit by turbulence in the markets and you intend on retiring soon, Morrissey says that you may want to start to take a lower amount out from your fund than you had planned in order to allow the rest to recover from any losses caused by market turbulence. 'We suggest that people in [income] drawdown keep between one and three years' worth of essential expenditure [from their savings] in an easy access account that they can use to supplement their income during times of turbulence,' she adds. Another option, on retirement, is to invest some or all of your fund in an annuity, where returns are close to all-time highs. Annuities convert a lump sum from your pension into a regular guaranteed income for the rest of your life or a fixed term. A healthy 65-year-old can now get an annuity rate of 7.72% on average, according to the pension provider Standard Life – that means that for every £100,000 invested, they would get an annual income of £7,720. About 21 million households will see their bills decrease after the price cap was reduced this week. For a household with typical usage, the cap has dropped by £129, to £1,720 a year. The good news may not last too long, however, as there are predictions of increases in October. After the recent conflict between Iran and Israel, oil prices went up because of concerns that supplies could be affected by threats of a blockade of the strait of Hormuz. Prices later reduced after a ceasefire deal was agreed. Will Owen of the price comparison website Uswitch says the volatility of the international economy has led to uncertainty. 'We are now seeing predictions from various organisations and energy suppliers that the price cap from October onwards will probably go up,' he says. To protect yourself against a rise you could considered a fixed-rate tariff – with these each unit of energy and the standing charges are set for a certain length of time. The MoneySavingExpert site advises that you are 'very likely' to save if you can find a fixed-rate deal priced at least 5% below the current price cap, which is predicted to fluctuate. The current best deals are a 12-month fix from Next that is 8.8% below the cap, another from Outfox Energy that is 8.1% less and then a fix from EDF Energy that is 7.2% less, according to the site.
The Guardian
05-07-2025
- Business
- The Guardian
How to manage your money in turbulent times, from savings to mortgages
It is understandable to be worried about your finances. The world seems to be lurching from one political crisis to the next, and each one has an impact on stock markets and prices. A recent survey found UK consumers are worried about a slowing economy, possible tax increases in the next budget and rising food costs. We asked experts how you should manage your money in an uncertain world. Stock markets around the world, especially in the US, were in flux earlier this year over Donald Trump's tariff plans. Things have settled down now but it is impossible to predict what shocks may be around the corner. If you hold stocks and shares – in an Isa or pension, perhaps – you may have been nervously checking their value. UK fund managers have been increasing their holdings in US companies over recent years, largely fuelled by the boom in tech stocks, so big moves over there have an impact here. However, experts say the most important thing to do is to not sell up out of panic. The analyst Dan Coatsworth of the financial advisers AJ Bell says: 'The worst thing people can do is to see troubling things in the news and then suddenly try to shift around their portfolio.' Markets have recovered in the past, he says, so patience is key. Where this advice may differ is if you need your money for something in less than five years – such as a wedding, university fees or a house purchase. Then you should look at how much risk you are taking, he says. Andrew Oxlade, an investment director at the fund management company Fidelity International, says this could mean switching some of your money away from the markets and into bonds. Bonds are issued by a corporation or country – the investor loans it money in exchange for a fixed rate of interest. They are typically bought through a fund. Many investment management companies offer funds that have a split between equities and bonds, such as Vanguard's Lifestrategy 80%. Gold, an investment that is often seen as a safe bet during times of crisis, has tripled in price over the past decade, and many investors now hold a small amount in their portfolios, Oxlade says, after years of poor performance. Investing does not have to mean buying bars or coins – Fidelity says the most direct way for most is through an exchange traded fund that tracks the price of gold. Interest rates in the UK can be affected by what goes on globally. The Bank of England is tasked with keeping inflation down. Before the war in Ukraine started, it had begun to put up rates, and as prices increased, it continued, raising them from 0.25% at the start of 2022 to 5.25% by August 2023, before holding them there for another year. The Bank has been reducing rates and is expected to make more cuts later this year, but the question is when. If you are planning to take out a new mortgage – either to buy a home or as a remortgage – you face a decision about whether to fix for the short or long term, choose a tracker or even to go on a bank's standard variable rate (SVR). Currently, the best-priced two- and five-year fixed deals have a rate of just below 4%. Nick Mendes of the brokers John Charcol says lenders are reducing rates at present largely because of falling swap rates, a key factor in how mortgages are priced. Swap rates reflect what the money markets expect to happen to interest rates in future. 'Fixed mortgage rates are more influenced by swap rates than the base rate itself, which means they are shaped by what markets think might happen in the future rather than what is happening today,' he says. Going on to a lender's SVR in the hope that fixed rates will improve later in the year is a risky strategy as the rates are high, at about 6.5%, and can change at any time and increase your monthly repayments. Tracker mortgages are also worth considering, Mendes says. These are linked to the Bank base rate. 'They tend to start lower than SVRs and often come without early repayment charges, which means borrowers can move on to a fixed deal later,' he says. Mendes says people who are remortgaging should not 'sit back and wait. Most lenders allow you to secure a new deal up to six months in advance, which is a smart way to hedge your bets,' he says. 'You can lock in a deal now as a safety net and still switch to something better if rates improve before the new deal begins.' For new buyers, Mendes says they should base decisions on what is affordable now rather than making assumptions about what may or may not happen in the future. 'The last position anyone wants to be in is having overstretched themselves on the assumption that they will be able to refinance on to something cheaper at the end of their fixed-rate period,' he adds. You are not tied to a rate until completion, so you should be able to switch if a better deal comes along. Savings rates could fall even before the Bank reduces the base rate, says Rachel Springall of the financial information site Moneyfacts, as account providers may decide that they have enough deposits for a certain product. 'If the whole market starts moving in one direction, you'll find that other peers will do the same because they don't want to put themselves too high up [in best buy tables],' she says. Until then, easy access and fixed-term rates are competitive, Springall says. The best rates this week for fixed one-year and two-year bonds are from Cynergy Bank (4.55% for the one-year and 4.45% for the two-year), while an easy access account from Chase offers 5%, although this includes a 12-month bonus and is a variable rate, so it could go down. There have been increases in the interest paid on fixed-rate bonds in recent weeks, she says. Anna Bowes of the financial advisers The Private Office says 'now is a really good time for a saver who has not been paying attention to their savings' as there is good competition in the market. If you have money in a variable-rate account it may be a good time to move it to a fixed rate. The tumultuous times that stock markets have been having since the start of the year will have had a direct effect on many people in the UK through their pensions. Often funds are heavily invested in US stocks, so the ups and downs there could be affecting your retirement saving. It is understandable if you are considering shifting money in your pension into other safer options such as bonds, says Helen Morrissey, the head of retirement analysis at the financial advice company Hargreaves Lansdown. However, unless you are cashing in your pension within the next five years, you should avoid reactions based on the international turmoil, she says. 'Over the course of your saving journey, you will hit several periods of market volatility and it's important to keep in mind that markets do recover over time,' she says. 'Making kneejerk reactions such as changing investment strategy has the potential to lock in losses as you miss out when markets do recover.' Workplace pensions are often invested in 'lifestyling' funds, which reduce the amount of risk as the holder gets older by shifting from equities to bonds. So if you are approaching retirement this may be happening automatically. If your fund has been hit by turbulence in the markets and you intend on retiring soon, Morrissey says that you may want to start to take a lower amount out from your fund than you had planned in order to allow the rest to recover from any losses caused by market turbulence. 'We suggest that people in [income] drawdown keep between one and three years' worth of essential expenditure [from their savings] in an easy access account that they can use to supplement their income during times of turbulence,' she adds. Another option, on retirement, is to invest some or all of your fund in an annuity, where returns are close to all-time highs. Annuities convert a lump sum from your pension into a regular guaranteed income for the rest of your life or a fixed term. A healthy 65-year-old can now get an annuity rate of 7.72% on average, according to the pension provider Standard Life – that means that for every £100,000 invested, they would get an annual income of £7,720. About 21 million households will see their bills decrease after the price cap was reduced this week. For a household with typical usage, the cap has dropped by £129, to £1,720 a year. The good news may not last too long, however, as there are predictions of increases in October. After the recent conflict between Iran and Israel, oil prices went up because of concerns that supplies could be affected by threats of a blockade of the strait of Hormuz. Prices later reduced after a ceasefire deal was agreed. Will Owen of the price comparison website Uswitch says the volatility of the international economy has led to uncertainty. 'We are now seeing predictions from various organisations and energy suppliers that the price cap from October onwards will probably go up,' he says. To protect yourself against a rise you could considered a fixed-rate tariff – with these each unit of energy and the standing charges are set for a certain length of time. The MoneySavingExpert site advises that you are 'very likely' to save if you can find a fixed-rate deal priced at least 5% below the current price cap, which is predicted to fluctuate. The current best deals are a 12-month fix from Next that is 8.8% below the cap, another from Outfox Energy that is 8.1% less and then a fix from EDF Energy that is 7.2% less, according to the site.
Scottish Sun
01-06-2025
- Business
- Scottish Sun
How to legally avoid paying tax on your pension as millions hit with shock bills
Click to share on X/Twitter (Opens in new window) Click to share on Facebook (Opens in new window) MILLIONS of retirees have been hit with shock tax bills after their state pension payments increased. Around 904,000 people on the state pension are now paying income tax at 40%, according to data obtained from HM Revenue and Customs in a freedom of information request. Sign up for Scottish Sun newsletter Sign up 1 Millions of retirees have been forced to pay tax on their pension for the first time Credit: Getty Meanwhile, 124,000 retirees are now paying the tax at an eye-watering 45%. The new state pension rose to £11,973 a year in April, putting it within touching distance of the £12,570 income tax threshold. But some pensioners receive more than this amount each year because they delayed the date at which they started to claim the payments. Pensioners who get income from a private pension could also find themselves pushed over this threshold. Income tax thresholds are frozen until April 2028, which means that more people could find themselves dragged into higher tax bands through a concept called fiscal drag. The higher rate tax band is frozen at £50,270, which means any earnings over this amount are taxed at 40%. Meanwhile, the additional rate tax band is fixed at £125,140, beyond which any earnings are taxed at 45%. But there are things you can do to stop a surprise tax bill landing on your doorstep. Here we explain how you can avoid the tax trap. Time your tax free withdrawals You can withdraw up to 25% of your pension pot tax free when you first retire. How to track down lost pensions worth £1,000s However, you need to pay tax on any money you withdraw beyond this. Any money you withdraw is added to the other income you receive, which could push you into a higher tax bracket. One way to avoid this is to spread out your withdrawals over several years, suggests Andrew Oxlade, investment director at Fidelity International. He said: 'If you do take a portion of the 25% tax-free sum every year, that income, along with income from Isas and your state pension, could be enough to keep taxable withdrawals from your pension below the higher-rate threshold.' How does the state pension work? AT the moment the current state pension is paid to both men and women from age 66 - but it's due to rise to 67 by 2028 and 68 by 2046. The state pension is a recurring payment from the government most Brits start getting when they reach State Pension age. But not everyone gets the same amount, and you are awarded depending on your National Insurance record. For most pensioners, it forms only part of their retirement income, as they could have other pots from a workplace pension, earning and savings. The new state pension is based on people's National Insurance records. Workers must have 35 qualifying years of National Insurance to get the maximum amount of the new state pension. You earn National Insurance qualifying years through work, or by getting credits, for instance when you are looking after children and claiming child benefit. If you have gaps, you can top up your record by paying in voluntary National Insurance contributions. To get the old, full basic state pension, you will need 30 years of contributions or credits. You will need at least 10 years on your NI record to get any state pension. He adds that this could be a particularly good idea for people who do not have a particular use in mind for their tax-free sum, such as paying off their mortgage. Andrew recommends that you add up your income from other sources and take the exact amount that will keep your total income below the tax threshold. Avoid emergency tax Once you have withdrawn the tax-free portion of your pension pot you will need to pay tax on any money you take out. When this happens, many savers are put on an emergency tax code. This happens because HMRC does not have an up to date tax code for you, so as a default it charges a higher estimated rate. You may then receive an unexpected tax bill and it can take months to get the money back. One way to avoid this is to take just £1 from your pension pot, which will trigger a tax code from HMRC. What are the different types of pensions? WE round-up the main types of pension and how they differ: Personal pension or self-invested personal pension (SIPP) - This is probably the most flexible type of pension as you can choose your own provider and how much you invest. - This is probably the most flexible type of pension as you can choose your own provider and how much you invest. Workplace pension - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. Final salary pension - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore. - This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year upon retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore. New state pension - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all. - This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you'll need 35 years of National Insurance contributions to get this. You also need at least ten years' worth to qualify for anything at all. Basic state pension - If you reach the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £156.20 per week and you'll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes. Once you have the code you can withdraw money from your pot and will be charged at the correct rate. Check your pension provider's rules to make sure it will allow you to withdraw such a small sum of money. Use your Isa Isas are a great way to top up your income without paying any tax. This is because all money you withdraw from an Isa is tax-free, so it does not count towards your taxable income. To make use of them just make sure you withdraw less than £50,271 from your private pension. You can then top up your income with money from an Isa. Or if you do not want to pay any tax then simply claim your state pension and withdraw any extra money you need from your Isa. Pay into your pot If you are still working when you start to receive the state pension then you will be able to benefit from a tax loophole. This is because you can still pay into your private pension even if you are above the state pension age, which is currently 66. Robert Cochran, retirement expert at Scottish Widows, explains: 'This can be especially beneficial if your pension income pushes you into a higher tax bracket. 'Contributions may reduce your taxable income and bring you back into a lower band.' The maximum amount that you can pay into your pension once you are above the state pension age is £10,000. This can have a significant impact on the tax you need to pay. For example, if you earned £10,000 from your job and received the full new state pension then your total income would be £21,973 a year. In total, you would pay £1,878.80 in income tax. But if you paid the money from your job into your private pension then you would not pay any tax. Make use of marriage allowance You may also be able to save on your tax bill if you are married or in a civil partnership. Depending on how much you earn, you may be able to transfer some of your personal allowance to your partner. This tax perk is called marriage tax allowance. You can transfer up to £1,260 of your personal allowance to your husband, wife or civil partner. Doing so reduces your tax bill by up to £252 a year. To benefit you need to be earning less than your personal allowance, which is £12,570. Meanwhile, your partner must earn less than £50,270. You can check if you will benefit from marriage tax allowance using the calculator on the website. Do you have a money problem that needs sorting? Get in touch by emailing money-sm@ Plus, you can join our Sun Money Chats and Tips Facebook group to share your tips and stories
