Are you saving enough for a comfortable retirement?

0:03Lee Boyce: Welcome to This Is Money podcast sponsored by Trading 212. Download the Trading 212 app and open a cash isa with promo code TIM to get the 12 month bonus promo rate of 4.62%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is Helen Crane. And coming up, the scale of Britain's pension saving shortfall has been laid bare in a major new government report. Are you saving enough for a comfortable future? Also state why lifestyle pension funds could be leaving millions worse off at retirement. We explore mansion taxes and wealth taxes. Nationwide FaroShare, a winning formula. And should we cap food prices?

0:43Lee Boyce: Don't forget to stay up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, a major new government-backed review into whether the pension system is fit for the future has found millions of people risk financial hardship in retirement. The first half of the report that's come out this week outlines the scale of the problem. The recommendations will come next year. Now, it found roughly half of working age adults aren't saving into a pension at all. And among those who are, many are only saving at very low levels. Who is most at risk? Low and mid-learners, the self-employed and women.

1:19Lee Boyce: So, goodness me, I am totally stuffed. Simon, tell me about the Pensions Commission.

1:28Simon Lambert: Well, the entire report wasn't just about Georgie Bingo and the fact that you've managed to hit all of them. But the nub of this is that we've got two things going on with pensions. Well, three things going on with pensions. Firstly, if you're a public sector worker and you still benefit from a defined benefit pension scheme, which is one that means your employer guarantees to pay you a certain amount in retirement for every year that you've worked there and you have signed up to that scheme which if people are listening to this and they do work in the public sector and their employer offers a pension scheme I cannot stress how important it is to sign up to that and take the maximum advantage pay in whatever you need to pay in in order to get that because it's a great deal if you're in that situation then you're probably going to be okay.

2:23If you work in the private sector where most pensions are what's known as defined contribution, you pay some money in, your employer pays some money in, the pot's invested to build up a sum for your retirement and then it's on you to turn that into income in retirement, then you will have benefited hopefully from something called auto enrolment which was introduced some time ago now and has dramatically increased the number of people who are saving into their workplace pension. And the idea is it's like the ultimate nudge theory. Instead of having to opt into your pension, you have to opt out of it.

2:55And if you don't opt out of it, you're in it. But the problem is the levels are too low. Even at the highest level that we've now hit of auto enrolment, workers put in 4%, employers put in 3%, and the government puts in 1 % via tax relief. So you've got 8 % going into your pension. Now, most experts say that you need at least 12 % going in and probably ideally 15 % if you want to have a comfortable retirement. And what's happened is we've quite rightly patted ourselves on the back for pensions auto enrollment being a success. Workers have not quite so rightly patted themselves on the back for the fact that they're paying into their pension.

3:39And we've sort of missed the point that we aren't paying enough in for all of these people when they reach retirement to have enough to have the retirements that they probably want. And the report that came out this week has said this is a problem, we need to do something about it. But also that the bigger problem is those higher up the age range women the self-employed for example who are not benefiting from this fully

4:08Simon Lambert: because those who are in their kind of probably early 30s i reckon like up to about the age of 35 maybe probably okay because they roundabout started proper full-time work when auto enrollment started those older than that might have missed the boat they might have not the auto-enrolment didn't exist they might never have actually joined or they joined too late and so those minimum amounts are definitely not enough the self-employed don't benefit from auto-enrolment and women are more likely to have time out of the workplace to look after children or also more crucially more likely to have a period of lower earning after they have children because they will tend to choose to work perhaps part-time or take lower paid less demanding jobs in order to have more time to be able to look after their children.

5:01And rightly or wrongly, it does still normally fall on the mother to do that. And so it impacts women more than it impacts men.

5:08Lee Boyce: Helen, you know I don't like talking about retirement saving research. It all says the same thing, to be honest. But actually, this is quite a major piece of work. It's not a couple of pension companies that are releasing a PR to get us to stuff money into their pension. This is actually a government backed commission that's looking at trying to resolve what could potentially be an absolute disaster, ticking time bomb, not to put too fine a point on it. But some of the stats in there, especially with the number of self-employed people saving, it is quite scary.

5:44Helen Crane: You're right. The figures are really stark. So this has been published by the Pensions Commission, which is a government initiative. It was set up, I think, last year to try and do something about this huge problem of people just not saving enough for retirement. And, you know, of course, the government is looking into this, because if we do end up in a situation where older people are poorer in years to come than they are today, the sort of onus to do something like that is going to fall on the government through things like benefits. So a huge issue. Just looking at some of the figures, 15 million Britons are not saving enough for retirement and more than four in 10 working adults are not putting aside anything at all.

6:24Helen Crane: I found that one quite shocking. In terms of how much you should be saving, at the minute, 8 % is the minimum amount that people put in. 12 % has been suggested as a percentage that would make a lot of people have a more comfortable retirement. But that sort of starts to feel like a lot of money, doesn't it? 12 % of your salary, you know, after all the other essentials. And as Simon said, you know, some younger people might not need to save that much at the minute if they've been saving for longer. So with pensions, the whole sort of thing is time in the market, right? So the younger you start saving into your pension, maybe, you know, you don't get to a stage where you're getting close to retirement, you have to start bundling absolutely loads in because you're sort of in a panic about what's going to happen.

7:08Helen Crane: But if you are in that stage where you're, I don't know, 10-15 years away from retirement and you don't have a lot then looking at a figure like that is probably a smart thing to do. One of the other things the report looked at is when people take out money from their pensions. So obviously a lot of people are able to take out money from their private pension pots age 55 and that's going to go up to 57 in a couple of years time but around three in 10 private pension pots are taken out at that point at age 55 and half of those are taken out in full so there's another another issue of people who do have private pension pots accessing them relatively quite early in life you know if you look at people now quite commonly living to their 80s or 90s taking out a lot of your pension in your 50s it's quite a risky move obviously no one knows how long they're going to live and you know it's not saying that all these people are spending it on something silly you know people often take it out to do things like renovate their home to make it more suitable for when they're older or you know buy a new car that they hope will last them into their older age and you know these can be sensible purchases but getting out a bunch of your money when you might have sort of 30 years left to live is another thing that i think people need to to think about so loads to think about in this report and i think it's one of those things where there's not one coverall solution.

8:31Lee Boyce: Simon, I've just been reading Steve Webb on LinkedIn, his comments about this commission, because of course, he's been reading it quite thoroughly this week. Pensions Agony Uncle, Sir Steve Webb. And then if you cast your mind back to 2014, he talked about the pension freedoms of people basically spanking the money on Lamborghinis. The pension commission is not a big fan of pension freedoms. Was Sir Steve right? Is that how people are spending their money? And if they're not a fan, could that be one of the issues in the recommendations that come out next year? Because actually says he hopes the commission doesn't crack down so hard on the two most attractive features of saving in a pension, tax-free cash and pension freedoms, that even fewer people think it's worth saving in a pension at all.

9:20Simon Lambert: I think to go back to the point where Steve famously made his Lamborghini comment, A point that we made back then is that people who have diligently saved for their retirement throughout their working career are highly unlikely to go and spank all the cash immediately, completely recklessly once they reach retirement. It's not a pattern that you would expect to see. and actually the evidence shows how many years in are we 10 11 something like that that people aren't doing that the people are actually being you know relatively cautious and in fact some people are too cautious people find it very difficult to go from what's called the accumulation stage to the decumulation stage where they have to start seeing their their wealth go down and and that, you know, their pension pot start to deplete rather than go up, or their savings balance start to deplete rather than go up, it is difficult for them.

10:26So actually you find some people spending less than they should do. Now on the flip side of that, you've got people who don't have a big enough pot to last them. And so obviously it's easier to crack through that quicker. But we're not seeing evidence of people, you know, splurging the cash. I think the issue is, however, most people are not really equipped to be turning a lump sum of money into an income that lasts them for the rest of their life and planning how that works without

10:57Simon Lambert: professional assistance. But most people also do not have pension pots of the size where they feel that paying for financial advice is worth it. So we're asking a lot of people in order to do that. and I think there was hope that the market would sort of step in a bit more than it has done, that the financial services industry would step in a bit more than it has done and it hasn't really. Now what we have also seen in April of this year was the launch of something called targeted support and targeted support is aiming to try to bridge this gap between you know financial advice and just going it alone and means that it's almost like the kind of it's described a little bit of as like the Amazon you know people like you also bought this kind of thing it means that banks financial services firms investment firms investment platforms you know all of those people can try to do a little bit more to help customers without worrying that they're going to get pulled up by the FCA and the FCA has indicated that it wants people to help people more so maybe this so-called advice gap that we've got is going to be slightly solved but it is a tall order to ask people to do this but then I also think that people need to look at whether it is worth them paying for financial advice and I know that it will feel very expensive to most people thousands of pounds out of their their limited pot that they've got to you know survive on for retirement but time and time again financial planners financial advisors produce evidence that shows that the value of that advice outweighs the cost of it.

12:35You know, the lifetime value of it substantially outweighs the cost of it. What we're also seeing now is more people interested in taking out annuities, which is what people used to have to do before the pension freedoms. So an annuity is a financial product that provides you with an income for the rest of your life. Annuities are priced off guilt yields. Guilt yields were absolutely on the floor after the financial crisis. And so annuities were offering a very bad deal. People also didn't shop around. So they were getting a bad deal on the bad deal and people didn't like them because it's a bit of a lottery

13:05Simon Lambert: the wrong way round because if you die early you've spent all that money on an annuity and you might not even get the money back that you spent on it in terms of retirement income and then it's lost it's gone your family don't get that whereas the idea of keeping their money invested and then you know if they died early and they hadn't used all of it it can be passed on to their family sounds a lot more attractive. Now on the flip side of course you could live a really long time and you could get much more out of your annuity than it ever cost you. But what we've seen with interest rates rising is annuity rates have gone up and that's now looking a lot more attractive to people and you're seeing more people taking annuities.

13:42Simon Lambert: Or alternatively seeing a scenario where they remain invested for a period of their retirement and then later on they take an annuity or they take an annuity to provide some of their retirement income. But even me describing it in the broadest possible terms there will sound really quite confusing to some people, bringing me back to my point of like a lot of people just are not set up to be doing this. And even if they have got the pot, then turning it into retirement income that will last until they die is a big ask.

14:13Lee Boyce: It's a huge ask. Going back to the idea of people underspending, That would be exactly me. I've always wondered about these sort of, you know, the fire, the financial independence retire early movement where you absolutely deprive yourself for decades. You shovel, shovel. And then all of a sudden you're supposed to enjoy your retirement by spending money. You're a bit younger. I just, I can't understand that. You couldn't be like that. Helen, let's get practical now. How can you check if you are on track? And how can you boost your savings if you are not? what can you do?

14:49Helen Crane: So it doesn't take much effort to check where you're at with your pension from your current employer. You should have most companies that have sort of an online portal to log into. You normally get sent a letter every year with an update on what's in your pension as well. Where it gets trickier is if you've got a lot of past employers and I've kind of started to look at doing this myself and it can be a bit of a nightmare. You might have to get in touch, find out your sort of login details and things like that, get in touch with an old sort of HR person but it is really worth doing because it gives you a really sort of full picture of where you're at and you might be surprised you know if it was a job from several years ago even if you weren't there very long there's sort of compounding you know it might be a worthwhile sort of amount in that pot so it is one of those annoying kind of admin tasks but really worth setting aside a sort of rainy afternoon to think about doing something like that you've also got the option once you've done that to consolidate your pension pots from different jobs.

15:50Helen Crane: Some people advise against that because you can lose out on some benefits sometimes and there's fees associated with doing that as well. But it can be beneficial if you're the kind of person who just wants everything all in one place and be able to easily see it. So it's worth considering. And also just worth talking to, if you are a salaried employee, just worth talking to other people at your work about, you know, are you in the pension scheme? is it decent some companies will have sort of different options that you can opt into and it's worth just knowing what's out there whether you're in the sort of best scheme that's on offer to you like Simon said especially if you work for the public sector definitely make sure you're paying in whatever you need to be paying in to get that deal because it's incredible if you are able to up your contributions say for example if you get a pay rise or some other windfall think about putting some of that money into your pension is an incredibly good deal.

16:44Helen Crane: You know, obviously, for a lot of people, there'll be times in their life where they can't think about putting more money away for retirement. But I think it's about sort of keeping on top of it and as and when you can, putting in a bit more. Some good tips there, Simon. There's a couple of things I'd add to that. In terms of the finding out where you're at, look at your letter from your pension provider when they send it to you. But also look at the date on it. The date that they've sent it to you might be quite recent but the date of what that projection is might be a fair distance in the past.

17:14I've seen this before where you get your annual pension statement and you're like oh god I thought it'd be better than that and then you realise that actually it's based on a value from six months ago or something like that. Whereas if you log in to your workplace pension scheme and everybody should find out how they could do that. If you don't know how to log into your workplace pension scheme find that out. First step log in see where you're at. You can then go use the pension calculator to try to look at the numbers and there's a number of them out there we've got one on this is money go to this is money.co.uk forward slash pension calculator it uses those pensions uk amounts that you need each year for a basic or moderate or comfortable retirement and you can see where you're at and it will tell you roughly when you can retire so use that calculator or go find one of the other ones out there put the numbers in and see where you're at in terms of getting more in helen's suggestion of if you get a pay rise putting it in is a

18:06Simon Lambert: great one that's a relatively painless way of doing it it's i say relatively painless it's not pain-free because you might be looking forward to being able to spend that money or not feeling quite as poor as you do at the moment and go oh thank god i'm due a pay rise soon um but if you haven't got enough going into your pension just chuck that in there if you're self-employed i'm sorry it's on you you need to be thinking about this in terms of your finances over the course of the year how are you going to do it are you going to do it every month are you going to do it with lump sums are you going to do it potentially with some money that you've got left over and what you're putting aside to pay your tax bill each year which hopefully you're putting aside more than you need and you end up with a little bit left in there are you going to think about it when you bill someone and every time you bill someone 400 pounds you're thinking right 40 of this has to go into my pension and if you do need to get from that auto enrollment amount of 8 % up to say 13 % which takes you above the 12 well the way you could do this is by doubling what you put in so if you put in 4 % then the government will then be putting in 2 % because it tops it up by 25 % and your employer if you're on auto enrollment levels would still be putting in 3 % that'll get you to 13 % and that'll cost you if you're on 50 grand a year it'll cost you 2 ,000 pounds a year which is 167 pounds a month and you might think i don't have 167 pounds a month but this might need to be 167 pounds that you need to find you know it's just over 40 quid a week or you might need to just find as much of that as possible even if you can't find the full amount find as much of that as possible but also watch out for something that helen mentioned are you in the best pension that your employer offers if you're auto enrolled you get also enrolled into the auto enrollment one but they might offer a better option you could be leaving money on the table and also watch out for this thing in auto enrollment where the money that goes in is on your earnings between 6 ,240 and 50 ,270 a year before tax so if you earn more than that check are you paying as much into your pension as you think or are you only paying in a percentage of your salary up to£50 ,000.

20:27And above that, you're not paying in that percentage at all.

20:32Lee Boyce: One thing though, Simon, on your website, could your workplace pension be scuppering your retirement plans? This is where you want to take a look under the bonnet. This is all about so-called safe lifestyle strategies. So basically, as you get older, you get closer to retirement, closer to potentially taking that money out, the last thing you want to do is it be in really, really risky assets that could drop as soon as you need the money. So these lifestyle strategies move you into less risky funds as you get closer to the inevitable date. But could they be leaving savers with less than they expect when they stop work?

21:12Lee Boyce: There's a load of research on this, and it is not pretty, Simon.

21:15Simon Lambert: No, it's not. And actually, this is a very, very difficult topic because arguably, probably these lifestyle funds shouldn't exist anymore and you shouldn't be lifestyling people anymore. Because this is a system that was built on the back of working your way up to a certain point when you retired and then you probably bought an annuity with that pot and turned it into retirement income. so as you said what you didn't want was for your pot to suddenly fall in value due to market problems you know stock market suddenly tumbling just before you retired so it de-risked you into safer assets except cash and bonds are also controversially not necessarily that safe cash regularly doesn't beat inflation so you've got an inflation risk there bonds theoretically a safe investment because the return from them is more certain but the bond market has been extremely volatile since the since the financial crisis we've seen bond yields on the floor when interest rates were cut we've then seen bond yields soar when interest rates rose and the corresponding element of that is that prices have gone up and down quite substantially so at any given time you could actually find that it's the safe part of your portfolio the bonds that have actually suddenly caused it to drop in value and as most people with defined contribution pensions are now keeping them invested arguably they shouldn't be lifestyling at all they should remain invested in the stock market because their investing time horizon has suddenly you know gone way into the future.

22:59No longer does it stop at the age of 65, 66 or whatever. It goes all the way to the day that they die. And actually, they want to remain invested in order to get the growth that they possibly can from the stock market. Now, it might be they want to be a more cautious investor, but they certainly probably don't want to be anywhere near as cautious as these lifestyle funds are. And the problem with the lifestyle funds is different lifestyle funds do it in different ways. So some of them have actually delivered quite good returns, especially when you take into account you know the the risk that they're taking and others have delivered really quite lousy returns so it's something of a pension fund lottery what should you do in all honesty i would look at this and say to myself what am i going to do with my money in retirement if i am going to buy an annuity if i do want that pension pot to be a certain amount when i retire maybe i'm planning on trying to take it all out you know there's a big tax hit on that so don't do that but maybe you're trying to take it all out to do something with it then maybe lifestyling is right for you i would also look at how the fund does the lifestyling as well but if you are looking at it and going no actually i fully intend to keep my pension invested in retirement i'm probably going to keep working for a bit you know i might work a bit part-time i might draw on it i've got other assets and my investment time horizon is you know until the day i die then i would get yourself out of the lifestyle option and just get yourself into the normal, you know, invested pension fund option.

24:28And it might be that that involves some bonds as well as some shares because that is a balanced portfolio, but you probably do not want to be in the lifestyle option. So again, you know, back to my point a minute ago, find out how to log into your work pension scheme and see where

24:43Simon Lambert: your pension is. That's the first step.

24:45Lee Boyce: All right, then you mentioned the T word there, Simon. So Let's go there next. Just days after the IMF warned Britain was reaching peak taxation, there's been a lot of talk about two more taxes that could be coming in. The so-called mansion tax announced in the last budget has gone out to consultation and Labour leadership hopeful West Streeting has been talking about a new sort of wealth tax all involving capital gains tax. So Helen, firstly, the so-called mansion tax. Where are we with that?

25:19Helen Crane: So as you said, this is something that was announced in the budget last year. It's basically saying that anyone who owns a house that's worth more than£2 million is going to have to pay what's called the high value council tax surcharge. That goes from£2 ,500 a year if you own a£2 million house up to£7 ,500 a year if you own a house that's worth more than£5 million. So it's not coming in until 2028. But what's been published this week is consultations. So the government's asking questions about what this policy could look like and what people think of it. I think one of the most interesting things that's come out of this is the prospect that people could defer it.

26:06Helen Crane: So the thing with this policy is that it's very difficult to look at people who own a two million pound house and feel sorry for them. Right. But there are a group of people that could be quite adversely affected by this. And that's the sort of asset rich, cash poor homeowners, particularly retired people who say might have bought a house in a nice part of London, the home counties 40 years ago. But for a price that was reasonable at the time compared to earnings, you know, what you call a normal house. I think the name mansion tax doesn't really help here because it obviously conjures up images of some kind of palace.

26:45Helen Crane: But like, it's reasonable that there are some people in the south of England who, you know, bought a normal family home in the 80s and are now sitting on a property that's worth£2 million, having only ever sort of earned a relatively normal salary. You know, there's been times when there's been ludicrous kind of property price inflation, and that's not the fault of these people. They've benefited from it. But especially if they're now retired, you know, an extra£2 ,500 a year could conceivably be a difficult thing for them to pay. Again, I should say there's many people for who this will not be a problem to pay at all.

27:22Helen Crane: But for those people, the government has come up with a deferral scheme. So this is only being consulted on at the minute. This isn't definitely going to happen. But basically, they could say, OK, we won't pay the tax now, but we'll pay it either when we sell the house later on or when we die.

27:39Lee Boyce: Like another kind of inheritance tax almost, isn't it?

27:42Helen Crane: Exactly.

27:43Lee Boyce: With interest as well. You'd have to pay interest.

27:45Helen Crane: That's the thing. So it sounds kind of reasonable until you hear that it could have interest of, I think, 4.75 % is the maximum level of interest they're talking about. And if this is over many years, that could roll up to a pretty chunky, you know, that could be tens, possibly even hundreds of thousands of pounds, depending on the value of the house that these people's estate would have to pay. And of course, that also means that people who can pay straight away will actually end up paying much less than the homeowners who were sort of on a lower income and will end up paying much, much more through their estate after they die.

28:21Helen Crane: Right. And I think the whole thing with this policy is, you know, it's going to affect a relatively small amount of people. It depends what they do with it after, though, because as we've seen over the years, the government loves to kind of freeze tax thresholds. If this comes in and that threshold stays at two minutes or even, you know, another Labour leader could come in and they could bring that threshold down. Is this going to be a tax that just hangs around for years and more and more people get kind of sucked into it and the rate never goes up? There's no guarantee that any future government would scrap it.

28:51Helen Crane: It seems to me like the kind of tax that could just quietly go on for a long time because no one really wants to complain too much about a tax that's for people who own£2 million homes. And it seems like one they could just really quietly sit on for years and years. I don't know, I think more people should be interested in it than just people who have a house worth that amount because I just think it's a bit insidious, really.

29:13Simon Lambert: I also feel, well, I think the management tax is one of the stupidest taxes I've ever seen floated. It really isn't going to raise a lot of money. It's deeply unpopular. It's weird. It's like inheritance tax. Most people don't pay inheritance tax. People hate it. Most people don't own mansions, but they hate the idea of the mansion tax. It's really not going to raise that much money. You can definitely see the potential for slippage, as Helen says, but also it's such a blunt instrument in that a mansion in one part of the country does not cost the same as a mansion in another. Now, you could have the scenario where, look, a£2 million house is a really expensive house, but there are houses in parts of London where a£2 million house isn't that impressive a house.

30:03Simon Lambert: Now, obviously, those people could move or whatever, but, you know, some of those people... We have had people write to us before who have ended up in this situation, who have ended up in these very expensive houses and they don't have that high incomes or whatever. But even disregarding that income level or whatever, is it fair that you're levying it at the same point in London and the southeast as you are in the northeast? I would argue not, because you can get a lot more for your money. You can be a much richer person and live in a much cheaper house in the northeast or other parts of the country than you would do in London, the southeast.

30:41Simon Lambert: and then it goes into this whole like idea that we should be charging council tax as a percentage of a home's value that just doesn't really reflect people's ability to pay the tax and in fact for some people it actually is much worse than others who might live next door to each other so for example let's take the scenario of suburbia right expensive southeast suburbia where you've got two people living next to each other one is a couple with two kids of school age who've just moved in and they have had to take out a mega mortgage and stretch themselves as far as they possibly can both of them are working full-time just to afford this four-bedroom detached house which is on the expensive end you know but it's not a mansion it's on the expensive end they've stretched as far as they possibly can but that house might be worth a million pounds right next door to them you've got the retired couple their kids have grown up they've flown the nest they've lived there for ages they bought the same house for 150 000 pounds they've got nice you know chunky pensions and in fact they managed to buy their house without both of them having to work full time at all and so on it's like yet we're saying that those two people in theory according to some who argue that you should pay a percentage of the home's value should pay exactly the same amount in council tax.

32:10Simon Lambert: It doesn't necessarily reflect their ability to pay it, does it? I mean, actually, arguably, you should be taking the mortgage off before you decide it. The mansion tax should be on homes that are worth£2 million after you've taken the mortgage off. But there's a reason why that isn't the case. It's because loads of people with£2 million houses would go out and get massive great big mortgages in order to not have to pay the tax. So it's like you don't have to pull on many threads for this whole idea to start unravelling as a particularly stupid one. And so for something that's going to raise such a minimal amount of money anyway, I just think we should bin it off.

32:47Lee Boyce: It feels a bit school VAT move. I sort of sense something that's not going to raise a lot of money, but feels politically in line with certain views.

32:58Simon Lambert: I mean, you would argue perhaps that it is for show. It's a for show tax. Yes.

33:04Lee Boyce: I also think thin end of the wedge, I sort of agree with Helen. But also, Helen, I was reading your newsletter. Do subscribe to that. And you said it's got pulses racing, as it were. People are annoyed, even though not that many people live in two million houses. I do think that, like I say, the thin end of the wedge with this one. But we could dwell on this for a while, but we won't because we've got other taxes that we can talk about. The proposed wealth tax from Labour leadership hopeful Wes Streeting has been in the news quite a lot at the moment. Different, I should say, to the wealth tax proposed by the Green Party, which would suggest an annual percentage depending on your wealth.

33:43Lee Boyce: So, for example, 10 million, 1 percent, 1 billion, 2 percent, I think. explain what this sort of wealth, it's not really a wealth tax, it's equalising capital gains tax, but just explain what it is.

33:56Helen Crane: I mean, it feels like there's loads of things out there at the minute that could be called a wealth tax, doesn't it? But this is the latest one. So this is Wes Streeting's idea, and he does seem a bit half-baked, if I'm honest. At the basic level, it seems like he wants to equalise capital gains tax with income tax. So the minute if you sell second home or sell shares and make a gain you pay 24 % tax on that above£3 ,000 a year. So he wants to bring that up to the same amount that people would pay on their income. So 20 % if you're a basic rate taxpayer, 40 % if you're a higher rate taxpayer and 45 % if you're an additional rate taxpayer.

34:41Helen Crane: On paper, maybe that seems like a sensible idea to some, but how much of that gain is down to inflation? I think it needs to be adjusted depending on how long you've owned the asset, how the assets have grown in value. Otherwise, it just seems quite mad.

34:59Lee Boyce: Simon, the argument from West Street and others, he's not the first person. This has been something that's been talked about for a long time is, you know, why should people who earn an income be penalised almost than people who sell assets. However, there is a concern that, for example, it could slow investment activity. If you're trying to avoid tax, you hold on to shares for longer. And this is exactly what Britain doesn't need.

35:27Simon Lambert: Yes. I mean, there's a number of reasons why this would be a bad idea, but there is a good way to do it as well. And if you do it the good way, then it's probably fine. But if you do it the other way, which I believe there may be quite a strong risk of that happening, especially if you look at some of the parties who are arguing for this to happen. And so the reason why it's lower, or the argument why it's lower, is because people are taking a risk. That's why you pay a lower rate on investment gains, business, you know, entrepreneurial risk, you know, so but you might be taking an investment risk, you might be taking an entrepreneurial risk.

36:04Simon Lambert: You could go up, it could go down. If it goes down, obviously you don't pay any tax, but you are taking a risk with your capital. Also, the reason why capital gains tax is lower is because in the past it was higher, but we had an element of indexation, which means that you were only taxed on gains above inflation, or you had something called taper relief, which reduced the level of the tax, depending on how long you'd held the investment, and rewarded long-term investment. There is an argument that if you just raise the level of the tax and you don't bring in that indexation element, then you will start to stop investment.

36:45Simon Lambert: Because there's an easy way to avoid this. You don't sell. It's a wealth tax, but it's a wealth tax only if you sell. And also there is a point where basically when you pass on assets at death, there may be inheritance tax to pay, but there's no capital gains tax. so at the moment if you just hold on to the investments forever and ever and ever and then you die you can avoid the CGT you can also do it by leaving the country as well and there's calls for that to stop too but what you need to do there is you need to remove double taxation and you need to structure this in a way as you say that it doesn't discourage investment because you may have noticed there's this squirrel wandering around at the moment telling people that they should be investing in the stock market.

37:29Simon Lambert: Now, one of the ways to encourage people to invest in the stock market is that they can make some gains and then those gains will hopefully be made at a tax advantaged level, right? You could do it by investing in an ISA, but you've only got£20 ,000 a year that you can invest in an ISA. Most people can't invest more than£20 ,000 a year. So do invest in an ISA, just do invest in an ISA. But beyond that, you can't. But there might be some people for example there's lots of people in this position who've built up quite large shareholdings in companies through work share safe schemes now you can shift those into an isa at certain points but lots of people don't realize this and they don't do it or they don't think about it and all of a sudden it builds up to a level where they're like oh wow if i sold that i'd have to pay a load of money in capital gains or there may be people who just held investments and didn't worry about putting them in an isa because it used to be the capital gains tax allowance was much higher it used to be£12 ,300.

38:24It's now only£3 ,000. And it was Jeremy Hunt who did that, not the Labour government.

38:29Simon Lambert: The Labour government has also, however, raised the rate of tax on capital gains. And all of these things are seen as discouraging investing. To come back to the way of how you do this properly is what you do, as I said, is you bring in an element of indexation. So you only tax gains above inflation. Then you can equalise the rates and it doesn't penalise people anywhere near as much as it sounds like and actually for in some many cases it would actually mean that people paid only the same amount of capital gains tax as they would now or potentially even less in fact in jeremy corbyn's manifesto there was a thing about equalizing capital gains and income tax rates and they did bring in a level of indexation but that was done on what they called a risk-free rate of return which used to return from government bonds from gilts And if you did the numbers on somebody, for example, who had held a buy to let for about 20 or 25 years, there was a scenario where they actually ended up paying less capital gains tax rather than more under that plan.

39:33Simon Lambert: So as you can see, even under Jeremy Corbyn, this could have ended up with people paying less tax. What it would tax, though, is people who make very short term big gains. And that did used to be considered to be a thing that we wanted to avoid. We wanted to encourage long-term investment.

39:51Lee Boyce: Just don't want to get too political about this. It's not my forte. However, I do wonder briefly, Simon, what do you think it says when you have a Labour leadership candidate that comes out, and I'm sure he announced other potential proposals, but this is one of them. When we did have, you know, the IMF warning about peak taxation, when people are feeling under the cosh at the moment, What does it say about the direction of the country which needs growth when we're just talking about another tax?

40:25Simon Lambert: I think it says that we are continuing to head in the wrong direction. And the problem is we have reached a scenario where the tax burden is very high compared to British historical standards. It's not that high compared to some other countries, but some other countries have a different way of thinking on these things. compared to, you know, the mindset that we are in as a country, the tax burden is at a high. However, taxes on the average earner have come down. And that was largely, again, thanks to the Tories, they did that. But what they did do is they started taxing higher earners much more.

41:06We've got problems with the tax code that haven't been sorted for years, things like the 60 % tax trap, the removal of the child benefit, which have created cottage industries in trying to earn less

41:17Simon Lambert: money. We are in a scenario where we do need to encourage people to invest more. We need to encourage businesses to invest more. We need to encourage people to invest more in our country. And an increasingly punitive tax system that targets those at the higher end who are already paying a very very large share of total tax receipts is probably not what we need and if you look at what the imf has said what the ifs has said what the bond markets are saying they are saying this is not the direction of travel that the country needs um now in theory you know if a a more left-leaning government came in and they taxed the rich people more and then they spent more on stuff that could you could argue that that would be an economically viable idea because the money that they are spending is obviously going back into the economy and it's improving things and it's improving public services and stuff like that but the bond market is giving a very very clear signal that it does not think that is a a desirable or be a workable plan it's saying yeah that not not a good idea you've you've been repeatedly trying that and it's not working and there is this perception that is taking hold and we are unfortunately reliant upon the bond markets because we spend above our means if we didn't spend above our means we could tell the bond markets to go stick it right but as it is we rely on the bond markets we rely on those you know investors lending us money in order to keep the country afloat um and we we do need to to probably listen to that i would say and it's you know we talk about the stock market as being a weighing machine right between buyers and sellers it decides the price but sometimes the bond market is a weighing machine as well the bond market is often a weighing machine for for policy or things like that and I think you know we should probably listen to what the weighing machine is telling us.

43:22Lee Boyce: Thank you very much Simon well if you want to find out more about bond markets and guilt yields and how it affects us and the money in our pocket then you can listen to the latest episode of Investing Unlocked on all good podcast channels and on YouTube at Investing Unlocked UK it's Simon and I's latest project looking at all things investing right. Just a couple of quick stories I I want to touch on. Firstly, Helen, plans to introduce a price cap in response to rising food prices. Labour's reportedly pushing major supermarkets to limit the cost of everyday essentials in return for easing regulations.

43:57Lee Boyce: And the boss of Marks & Spencer, Stuart Machen, well, he's not happy about it, describing the plans as completely preposterous and said the retailer had not received any communication from the government. So where has all this come from? And is it likely?

44:12Helen Crane: Yeah, this is another slightly crazy thing that seems to have come out from the government this week. These aren't sort of confirmed reports, but apparently this is something that's been suggested by Rachel Reeves. And she's basically saying the government could ask supermarkets to cap the price of essential foods like milk and eggs and bread in exchange for the government relaxing and delaying some regulations that retailers might not like. So like things on recyclable packaging and things like that. People are obviously quite flabbergasted by it. A city analyst has said the Treasury is losing its mind in an orgy of neo-Soviet policy ideas.

44:53Helen Crane: On a serious note, a lot of people are struggling with the cost of food shops. The price of shopping has gone up a lot in the last few years. But, you know, this has been looked at before. When the cost of living crisis a few years ago started, their investigations into whether the supermarkets were doing what's called price gouging, which is essentially putting prices up over and above the amount that their costs are going up just to sort of make a profit out of customers. And it's been found repeatedly that, you know, they're not doing that. Supermarkets margins are actually really fine on a lot of products.

45:28Helen Crane: The boss of M &S has come out and talked about this this week and he said on bananas they actually make a minus 6 % margin. So, you know, not to feel too sorry for supermarket bosses, but they are essentially selling some things at a loss. And I just think the fact the government has come out and said this is a bit rich, really. You know, if you want to make it easier for people to afford their shopping, maybe don't do things like freeze the income tax thresholds for years and years and years. you know, sort out the housing market so people aren't paying ludicrous amounts in rent. You know, it isn't...

46:03Helen Crane: Yeah, but not a quick fix though, is it? No, it's not a quick fix. But I think there's an element of this, which is like, you know, if people are struggling to afford milk and eggs, then, you know, that's on the government as well as on supermarkets.

46:17Lee Boyce: All right, then, finally, Simon, they've done it again. Nationwide will be handing millions of its members a free 100 quid payment. The world's largest building site is handed out its fairer share payments every year since 2023. But not everyone will get it. Who will get it? What is it? Why is it?

46:35Simon Lambert: This is probably one of the most successful loyalty things to come out of a building society or a bank in recent years. The fourth year in a row, Nationwide will be making fairer share bonus payments. Now, in order to qualify, you need to have a qualifying current account open on the 31st of March 2026, combined with at least£100 in savings or a minimum of£100 owed on a mortgage on the same date. First time this came out, there were some people who were happy because they, for example, they were long-term nationwide savers, didn't have a current account, or their current account didn't qualify because they hadn't made the requisite amount of transactions, which is only a couple of months, or they didn't have the money, or they did have a current account, they didn't have the money in savings.

47:19Simon Lambert: It is now the fourth occasion and we have written countless stories reminding people what they need to do to get their fairer share bonus over the months in which they needed to do it to qualify so i think we have now reached the point where people who aren't getting the fairer share i think they need to accept that it's probably on them now okay but it's great that nationwide is giving out this money and i say that as someone who got an email from nationwide this morning telling me I was getting£100. But it has proved hugely popular. The difficulty is now people expect it every year. So, I mean, could they take it away?

47:57Simon Lambert: Could they not do it? Also, the£100 hasn't been adjusted for inflation since it started. But I quibble. I had an email telling me I was going to get£100. I'm not arguing with that. Well done, Simon. Well done. Right, Simon, start of the week, please.

48:13Simon Lambert: $1.75 trillion. That is the valuation that Elon Musk is aiming for for SpaceX in what would be the biggest IPO in history. How did he come about that valuation, Simon? Finger in the air. Well, they're not saying that it would definitely be that. It's a range. It might not be that much. It could be considerably lower than that. But he's only looking to raise$75 billion in this IPO. But to put that in perspective, the filing to the SEC showed that he would retain 85.1 % of the combined voting power of the company. So he's only actually putting a very small amount of the company onto the stock market.

48:58Simon Lambert: It is still, due to that limitation, probably likely to be highly subscribed. It's probably, because of that, likely to be very much in demand. It's probably likely to pop on open. What will happen after that? Who knows? But the SEC filing is epic. OK, SpaceX's filing says we believe we have identified the largest actionable total addressable market in human history. We estimate that our quantifiable total addressable market is twenty eight point five trillion. It also talks about future markets. Future markets for SpaceX include point-to-point terrestrial travel, space tourism, in-orbit manufacturing, passenger and cargo transport to the moon and Mars, energy production on the moon and Mars, manufacturing capabilities on the moon and Mars, asteroid mining.

49:54I mean, wow.

49:57Lee Boyce: Right, that's it. You can keep up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. If you have any comments or questions to team or anything you'd like them to look into, Simon.

50:08Simon Lambert: You can email us at podcast at thisismoney.co.uk or come to thisismoney.co.uk forward slash podcast to join in the debate and read your comments. And if you like our podcast, well, rate us wherever you found us. Helps other people find us too.