Base rate rises to 4% but will it really help tame inflation?

0:02Lee Boyce: Welcome to This Is Money podcast sponsored by Trading 212. Download the Trading 212 app today and open a cash ISA with promo code TIM to get the 12 month bonus promo rate of 5.02%. Terms apply. I'm Georgie Frost and joining me and Simon Lambert today is Lee Boyce. And coming up, we got our first base rate rise in three years this week. But what does the move mean for our money? Well, rates head next. Also today, as investors get increasingly concerned about enormous sums being spent on AI, is the bubble about to burst? Is there anything we can do to protect ourselves against a stock market crash?

0:39Lee Boyce: Glass, are you heading for a bleak retirement and is your stingy employer to blame? And are you banking on an inheritance that may never arrive? Don't be at your step-to-date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. But first, not totally unexpected. The Bank of England raised interest rates this week from 3.75 % to 4%. And it was sort of pretty unanimous. Eight to one the vote, the outlier wanting to go even higher. But what does it mean for our money and where are we headed next? Simon Lee, welcome Simon. Not a surprise, but why the decision?

1:18Lee Boyce: Interest rate rises, I thought, were a tool to bring down inflation. But if inflation is being caused by oil rises from a war in the Middle East, what can it meaningfully do?

1:32Simon Lambert: Well, that's a very, very good question. And what you have to think about is that we're dealing with two things here when it comes to interest rates and inflation. now the reason why the bank of england changes interest rates to try to deal with inflation is because by raising interest rates it makes the cost of money more expensive and by lowering them it makes the cost of money cheaper and if you raise them and raise the cost of money it raises the cost of borrowing money so businesses people are less likely to borrow money that means that there's less money going into the economy so it helps to slow things down also means there's less money being created as well when banks make loans and the overall impact of that is you're sort of pushing on the brakes right and then the opposite way around you cut interest rates you make money cheaper and then more people borrow money more businesses borrow money you know more money would get spent there's also this element where if you raise rates it makes you know saving more attractive or keeping money at the Bank of England if you're a large financial institution more attractive than maybe doing something else with that money that might be more productive and fuel the economy.

2:51Simon Lambert: Obviously, as you pointed out, if the inflation is coming from somewhere that isn't in your economy, it would seem that whether you're pressing the brake to slow things down due to higher inflation or if, for example, as was the case in the early 2000s, the deflationary pressures, which are pushing down inflation, are coming from outside of your economy, the flood of cheap goods from China and everything like that, all the cheap capital going around the world, then pushing the accelerator probably won't make that much difference. But what the Bank of England is looking at when it looks at interest rates is if we do something now, what will it change in the future?

3:39Simon Lambert: What we're looking at when we look at the inflation figure that gets reported is what has happened to the cost of living in the past over the last 12 months. So one of these is looking backwards, the other one is looking forwards. Now, the Bank of England is acting on the backwards measure. It's got a remit to keep inflation at the 2 % target. And at the moment, inflation is well above that, 3.5%. But the Bank of England is looking at what's going to happen to that inflation next. What's going to happen to that inflation over the next 12 months? What's going to happen over the next 24 months? And if it starts to see inflationary pressures being embedded in the economy, if it starts to see businesses saying we're going to have to put prices up, if it starts to see workers saying we're going to have to ask for more pay, if it starts to see all of those things like that, then that's when it might raise interest rates to deal with something that is coming from outside of the economy.

4:42Simon Lambert: So, yeah, oil prices, energy prices, the Bank of England can't do anything about that. If they could just go tap Mr. Trump on the shoulder and say, look, mate, come on, causing us all kinds of a headache. Stop it now. Then they would have done it by now. But what they can do is they can act to try to keep a lid on, you know, those businesses pushing up costs because the businesses are going to go, oof, our interest rates going up. That's going to slow the economy down. Maybe I can't get away with pushing up my costs as much as I might have thought I'd done. I'm going to have to soak some of it up.

5:13Simon Lambert: Workers are going to go, poof, maybe I shouldn't be demanding higher pay. um i mean there's a bit of a gap in pay rises at the moment there's like some people are getting really good pay rises a lot of them are in the public sector um but some of them aren't and then some people are just getting like boggo lucky if they manage to match inflation pay rises um so you can't really talk about this as a whole it depends on how much bargaining power you have but it's trying to chip away at the people with the bargaining power unfortunately those without the bargaining power also get a bit stuffed. I will say that it's not helped, obviously, by things like the minimum wage and the state pension going up by an inflation busting amount.

5:53Simon Lambert: But that's a different conversation that we had last week.

5:56Lee Boyce: For another podcast right now, because Lee, what I want to know is how much are we going to feel this pain, mortgage borrowers? Has this not been priced in already, though?

6:06Georgie Frost: Not quite, Georgie. I mean, some of it has, because we have seen mortgage rates that have been going up and then going down and going up and it's been a bit of a roller coaster of a year but at the moment we're in a kind of point where mortgage rates have been rising kind of gently in the last couple of months anyway this is going to likely exacerbate that and it depends also where base rate heads next because you know there's a one more decision before the end of the year there's talks that it might be 4.25 percent I mean it was an eight eight to one vote one person that actually vote for a 4.25 % hike.

6:40Georgie Frost: So, you know, that will put pressure onto lenders to put up rates. A lot of it's linked to Sonya swap rates. A lot of it, you know, some of it has already been priced in. But, you know, we still talk about this. The people are coming off the back still of ultra low mortgages from five years ago. There's still quite a lot of people that are coming off that. And our inbox is quite often full of people that are asking what to do. But on the whole, it will probably mean that mortgage rates will continue to nudge one way, and that is potentially higher. But weirdly, this week, even though the base rate decision was quite nailed on, we did actually see some major high street lenders cut rates earlier in the week.

7:24Georgie Frost: And the money facts kind of barometer of where mortgage rates are had slipped ever so slightly. It's hovering around the 60th mark on average. A lot of it's to do with competition. And there's quite a lot of lenders want to lend, right? If they don't have people to lend mortgages to, it's the main book of their business. You know, it's how they make money. At the end of the day, they're not lending you money at a goodness of the heart to get you on the property ladder. They're lending you money because they're making money off the interest that you're paying. So it's in their, you know, very nature and need to make sure people are borrowing money and taking out mortgages.

8:00Georgie Frost: Whether that continues is almost impossible to say at the moment. And I actually thought that a quote from Andrew Bailey was quite good on this. So we're obviously hovering at the moment oil prices around about$100 a barrel. It's almost impossible to figure out where that's heading. We've just had the midterms this week in which Donald Trump's been given a massive nosebleed and the kind of people in America have been fed up with this war in Iran and seeing the cost of oil and other things that that then leads to getting higher. And Mr. Bailey said, in response to what the midterms will do, the whole situation is so volatile that you really don't want to put much weight on two days, talking about the midterms, which haven't yet been backed by any firm evidence that there's going to be a peace process which is going to lead to something concrete.

8:46Georgie Frost: So talking about Iran. And the other ugly thing that's coming along the road for us in Britain as well, georgia in january is you only have to look at where the price cap the energy price cap is heading for households there's a lot of forecasts that say it's going to be beyond two thousand pounds that has a big impact as well on figures so there's a lot of play and as mr bailey says here very volatile this week has been a particularly volatile week u.s political situation is such a beast and it has such massive shock waves across the globe it does affect people on the mortgage rate they get here on the flip side of that savings rates and savers likely to see rates rising we have seen we have been seeing rates rising anyway uh in the last month or so but likely that deals are going to continue to get better it's very likely that you're going to be able to get plus five percent on your savings rate depending on what it is that you're in the market for but a big yeah word of caution of this is where does inflation go next now it depends who you ask it depends which experts you kind of listen to and there's talks of uh you know it basically could reach six percent uh inflation could reach six percent more conservative estimates are saying more like four and a half five percent if it does hit somewhere between five and six percent and you're not getting that on your savings you're going to be losing out in real terms so it looks great on paper to be getting a you know plus five percent rate but inflation three and a half percent the gap between you know isn't great lots of people just have their savings stuck around possibly not earning beyond that three and a half percent rate if inflation the

10:16Simon Lambert: next inflation reading ticks even by which is expected to do very likely that your savings

10:22Georgie Frost: aren't going to be matching inflation so it's vitally important that you check what savings rate you are getting especially at the moment because again competition and that's only going to continue i would suggest over the next couple of months and it means that competition rates will edge higher so definitely keep an eye out what the best deals are and make sure you're not just parking your money uh with your bank earning next to nothing but even some of the big banks are offering fairly decent rates you just have to go and hunt them down they're not going to give them to you on a silver platter you have to go and find them absolutely right it's a good way to

10:57Lee Boyce: for me to gauge where savings rates are going just by the start of the show lee last week 4.83 This week, 5.02%. So there you go. Simon, Lee mentioned there about mortgage rates and how you've been getting a lot of questions from listeners and readers. I got one from a listener. Help, they say, Simon. I'm remortgaging for two years and I'm going for a fixed rate, 5.13 % instead of a tracker base rate, 4.3%. As I'm assuming interest rates are just going to go up, am I doing the right thing? For context, to transfer to the fixed rate,£1 ,499. The tracker,£999.

11:39Simon Lambert: Okay, so this is a difficult question. And this is actually something that our mortgage expert, Abe Magnus, wrote about this week. It's been a big rise in the number of people taking tracker mortgages.

11:49Lee Boyce: How do they work?

11:50Simon Lambert: A tracker mortgage follows the Bank of England base rate. And you can choose to follow the Bank of England base rate for a short period of time, a medium period of time, or a long period of time.

11:59Lee Boyce: but it's not just the base rate is it it's not like it's going to be four percent now it's four percent plus something yes so it follows the base rate plus an amount so you don't just get the

12:11Simon Lambert: base rate some of them used to follow the base rate minus a certain amount i don't think i don't

12:16Lee Boyce: think you can still get those anymore um but they go in and out of fashion right and it depends

12:22Simon Lambert: largely how they're priced compared to fixed rates like you can fix you can track for two years track for five years you can get a lifetime tracker lifetime trackers used to be really good deals actually i had a couple of those because they tend to have no early repayment charges so you can get out of them if for example things move against you and it suddenly becomes cheaper to fix now the decision is if that tracker mortgage is going to start at a lower rate than fixed rate mortgages which you would think would be the case but actually for quite a while until relatively recently that wasn't the case you could fix cheaper than you could track so you be like well why would you track um if you if you can get that track of mortgage lower than the fix then what you need to do is you need to try to work out how much you think interest rates are going to go up by and at what point it meets the rate that's on the fix if there's a big gap then you've got you know maybe two three interest rate rises in the tank after this one if there's only a small gap, then you might have less than one interest rate rise in the tank.

13:29Simon Lambert: That's the buffer that you've got. And there are varying suggestions as to how many times interest rates may go up. You've got, you know, some of the more outlandish market forecasts talking about four base rate rises. And then you've got some of the more what I'd term dovish forecasts suggesting that we might get one more after this. You know, it's probably not one and done, but we might just get one more after this i refer you back to mr boyce and mr bailey and their discussions about how we literally just don't know what's going to happen and you know what happens with the iran situation is going to very much define what happens with interest rates and how much the bank of england feels it needs to act it could be for example the person i was talking to yesterday was of the view that you know interest rates are going to go up and then they're probably going to come down again.

14:23Simon Lambert: So actually, he's probably going to end up, you know, okay, his rate will go up in the short term, but it probably come down again. And he's probably going to end up roughly where he started. So, you know, the decision is yours to make personally, I obviously can't give anybody mortgage advice, what you need is a mortgage advisor, and to have the conversation with them, but also to ask them the right questions. Why? Why, for example, are you only recommending two years why are you not recommending five years why are you saying i should do this what about you know how many times would rates need to go up before my tracker hits the fix it's like really ask them all those questions make them work for the money that they're going to earn off you um and then you know the thing with a tracker is effectively it's a bit of a gamble if you are happy to do that and you are happy to take the risk that it could go up by more than you think and you've got the financial firepower to deal with that, if it does happen, then by all means, take a gamble on the tracker.

15:25Simon Lambert: But if security matters more to you than anything else, and knowing exactly how much your monthly payments are going to be, you can budget for them and you know how much they're going to be for a certain period of time, then you're probably falling more into the fixed rate camp.

15:37Lee Boyce: All right then, Simon, thank you very much. Right, Lee mentioned the midterms. Interesting, interesting times over the other side of the pond. Trump's party took a bruising in the midterms and Wall Street has taken something of a beating as well. More than two trillion wiped off US tech stocks in a day, raising fears of a wider stock market crash. So investors are getting nervous about the vast sums being poured into AI. I feel like they've been nervous for a while now, whether they'll ever see a decent return and that the election results could put a break on data centred development and other AI stuff.

16:12Lee Boyce: Firstly, though, Simon, the midterms, the blue wave, does it make a difference to us here and our money?

16:19Simon Lambert: Well, it does if it makes a difference to what happens with Iran and that influences inflation and interest rates. The question is, what difference will it make? I mean, Donald Trump said vote as if my name's on the ballot and people either ignored him and voted how they were going to vote or they did vote as if his name was on the ballot. But he's now said, my name wasn't on the ballot, so this isn't a verdict on me. I think it's fairly clear what it's a verdict on. Look, Donald Trump promised two things. He promised to reduce the cost of living and to end forever wars. And he has started a war that doesn't look like he's going to end anytime soon and has driven up the cost of living.

16:57Simon Lambert: At the same time in the US, there is a colossal row and almost like cultural divide going on over AI and data centers and the huge amount of building out of data centers that is going on. They are hugely controversial. It's like kind of, you know, UK planning arguments writ large in the sky kind of thing, but with, you know, billions or trillions involved rather than just whether some houses are going to get built on a field at the end of your road. or a massive whacking data center that's going to overshadow your garden, as we keep seeing. And so we can understand what's going on here. But there's also concerns about energy, because obviously they guzzle huge amounts of power.

17:41Simon Lambert: There's concerns about water, because obviously they require huge amounts of water. The AI data center build out is fueling the US economy, because obviously building these things costs fortune. Not everyone's benefiting from it. So there's this big argument going on here. So this does affect what happens to our money because a lot of big things are tied up in it. A, the stock market. B, the US economy. C, the war that's affecting everybody.

18:06Lee Boyce: So we saw that big drop, didn't we, on the markets. I get that there's concerns over AI. Why would that spread to a wider stock market issue though, Simon?

18:16Simon Lambert: A lot of the stock market gains that we've seen over the last year or two have been fuelled by the AI trade. There's been many, many concerns raised over this, and they've been batted aside each time or things have like rode back a bit people have turned their attention a little bit elsewhere and then they and then you know the ai things pick back up again and everybody's gone piling back in the so-called hyperscalers so you know the meta alphabet amazon tesla the people spending vast amounts of money on building out ai infrastructure have raised unbelievable amounts of money off bond and stock bond investors and also like equity investors so in like you know um fundraising from share issues and fundraising from bond issues and there is a there is a huge concern about the amount of money that they are raising and the amount of money they are plowing into ai to give you an interesting snippet from this Okay.

19:21Simon Lambert: One of the things that was always said about the big US tech companies was that actually, you know, they're very profitable and they have a huge amount of cash flow. Not all of them, but most have a huge amount of cash flow. Like Meta's cash flow is amazing. Google's cash flow or Alphabet, to give it its proper name. Absolutely amazing. this ai uh hyperscaling has reversed that so much that they are now having to raise vast sums of money to spend on the ai build out um because they've basically like nullified you know all their cash flow and more google or alphabet whatever you want to call it in its results last week basically revealed that its AI overviews are costing it money.

20:11Simon Lambert: So basically the rollout of the AI overviews and the increased use of AI overviews is having a major impact on Google's main business, which is basically flogging advertising, flogging sponsored links to people. So Google is raising vast sums of money in order to spend it on something that is reducing its own profits. Hence investors went, hmm. And it just explicitly said this really, don't really like that. I mean, it's great for publishers, right? Okay. And probably for the knowledge base of the world, because AI overviews are just regurgitating stuff and stealing information from other people and then, you know, synthesizing it into an answer.

20:52Simon Lambert: And so, you know, certainly there will have been lots of news publishers around the world feeling a little bit of schadenfreude last week and also thinking well this might be a bit more positive if they row back slightly on the aio views but this is just like one snippet from the whole thing so initially what happened after the midterms was quite interesting like you saw the companies the share prices of the companies that are benefiting from the hyperscaling i.e the companies that are getting the money spent with them they fell but actually the hyperscalers shares went up basically i think because investors went OK, so if the Democrats try to sort of like stall or block the AI data center build out, that will be bad for the companies that are benefiting from the spending on the AI data center build out.

21:39Simon Lambert: But it might actually be good for the hyperscalers because it'll stop them wasting so much money on this. So effectively, it might be for their own benefit if it slows them down. That didn't last very long. And then in the last couple of days, we've just seen like general kind of carnage. The big question is, is whether this is just a bit of general carnage, whether we're just seeing the kind of normal correction that you see come along every so often. We see you see a 10 percent correction in the market fairly regularly. Or is it going to lead to something bigger? Is it going to lead to the 20 percent, 30 percent fall, 40 percent fall that people have been worrying about for ages?

22:16Simon Lambert: There's literally no way of knowing what the answer is to that.

22:20Lee Boyce: Which obviously means I'm going to ask you anyway. survey says AI bubble burst or this has got some track to go.

22:29Simon Lambert: Simon? It's very difficult okay and obviously I've talked to a lot of people about this it's clearly a massive bubble.

22:36Lee Boyce: Will it burst though?

22:37Simon Lambert: All bubbles burst at some point

22:38Lee Boyce: They don't all burst. I've had parties where you know weeks afterwards they're just a little slither on the floor. They haven't burst they've just sort of just slowly died to death.

22:47Simon Lambert: But you don't really know. It's like all the hallmarks of it's got all the hallmarks of a crazy bubble but you know maybe it'll keep going on it's kept going on for much longer than people think i think at some point there's going to be something of a reckoning in terms of um the amount of money that's being spent on the hyperscaling and the amount of money that's been you know raised off investors to do this and the return on that money which there are deep concerns about whether they're ever going to get a return on that money um that justifies you know the amount of money. But you know, the answer is basically, why does this matter?

23:21Simon Lambert: Because tech firms make up, you know, 40 % of the US stock market, US stock market makes up 70 % of the global stock market. What can you do about this? You can either go, do you know what, I'll let the market sort out, and I will just stick my global stock market tracker. Or you can go perhaps I might divert some of my money to some other places that are more sheltered from the storm, and won't necessarily be affected so much. For example, things like, you know, the UK stock market, which is pretty technology light, but it's got a lot of pretty stable, solid profit companies. You might look at other places.

23:55Simon Lambert: You might look at things like biotechnology and healthcare. But the thing is, if the market takes a really big tumble, everything takes a really big tumble. That is what happens. But some things will be affected less than others and might have a better chance of bouncing back. The problem all investors face is that what has happened over the last, god how long are we talking 10 years maybe a little bit longer is that every time it happens

24:19Lee Boyce: it's the bloody tech firms that bounce straight back up so don't panic but i think it's a really good point about while you may not realize it i mean our listeners probably will but lots of people won't realize that their pensions are really heavily invested or it's it's hard to figure out what's to do apart from just trust the process is that the advice you need to think

24:42Simon Lambert: about what your investing time horizon is and how long you might potentially have to you know ride out any storms and make the losses back because you know markets go down and then markets go up again and if you're in for a long time then the chances of you losing out even if you put your money right in at the peak um over the long term are greatly reduced if you have a very long investing term horizon i.e you're in your 20s uh and you've only just started investing uh and you don't need that money in the near future you just don't need to worry about it if you're 30s and it's your pension you're not going to be retiring for another 30 years you know you just don't need to worry about it if you're in your 50s and it's the sum of money that you're looking at and it's in your pension for example or your isa and you're like i am going to need that money in order to you know live on fund my lifestyle fairly soon then you maybe need to think about potentially dialing back the risk and if you don't know what you're doing or you need any help then you should go and speak to a professional financial advisor because it'll cost you money but the cost of it may be very much outweighed by the benefit that you get in the long term.

25:52Lee Boyce: Thank you very much Simon. Lee do you have anything to add to that?

25:55Georgie Frost: I do George I think there's two things I want to add to this and the first one is this feels like the most slow-moving kind of car crash bubble ever I feel like we've been talking about the ai bubble popping for a very long time and actually it's given people enough time to go and have a look at what they are invested in what their pension is in and to see just how exposed you are to this and of course because the investing diversification as we know is key so you know it kind of does show you why you shouldn't have all your eggs in one basket you have a week like this when everything goes red but especially a certain sector and you go you know you could be overbalanced in a certain a certain way the second thing i was going to say is at the start of last month so start of october i was actually in the states so i was in cincinnati which is in ohio across ohio is kentucky so i was in the two states traveling the two states i was talking to a lot of people around both of those states but interestingly when you know when you're in the hotel room when you're on a trip like that and you're kind of watching tv i saw so many the adverts coming up about the midterms and it gives you a flavor of what people are worried about or talking about and one of the big things uh was farmers farmers talking about the price of fuel how expensive it's become um and it was just basically you know not viable for it to go on like this the other thing that i i kind of hadn't really thought about much but obviously have done since when i was landing flying and landed in i saw these huge data centers there was quite a few on the path of the way in and I didn't quite realize how many had been built because of course if you're building a data center in Britain it takes absolutely ages all of the planning permission we don't have as much land and space as America does really vast and it was probably the biggest talking point on these adverts was talking about corrupt politicians that are taking payments to get these AI data centers built quickly all of that kind of thing and I just didn't really quite cotton on to it but now it makes a huge amount of sense that that's where a bit of a nub point is with democrats now having you know a bit more power that they can put more blocks to these kind of things which is going by talking to a lot of people in the area it felt like that people were quite happy they'd be quite happy for these ai centers and the speed of which they're being built to be slowed down so that adds up to what's happened this week and it's been it's been really interesting.

28:24Lee Boyce: Just out of curiosity, Lee, we're supposed to be getting, so all the rumours are,

28:30Simon Lambert: Anthropics IPO in a couple of weeks.

28:34Lee Boyce: Is that likely to go ahead? I mean, obviously, they're coming to market because they want a ton more cash. And if we're getting all nervous about the amount of cash being spent, what do you expect will happen there?

28:45Georgie Frost: Well, they've been talking about launching it as soon as the 16th of November and hoping to price and this before Thanksgiving. But given this massive decline and the political shifts in the midterms, there is actually a possibility that this is going to get delayed or even a full postponement. I mean, it's probably a bit early to sort of say. And it takes a lot of work, obviously, to IPO and a lot of things go on behind the scenes. You know, they were aiming to raise up to$100 billion. Not all of that would be from US investors. The rumors were that there would be enough to go around. so aka UK investors would have been able to get involved as well 1.5 trillion valuation that we put it out which would be the largest IPO in history given everything that's gone on this week valuation looks like it's going to have to climb down a little bit to just a mere trillion and the scale of what they're looking to raise might be dropped as well it's worth keeping an eye on that i mean imagine trying to ipo a massively ai heavy business in a week or a kind of month in which there's be a massive ai stock market stock price correction i mean that's the stuff of nightmares but the kind of people that are involved in that so i would i would have thought that this is going to get pushed back a little bit would there be a formal postponement what could they potentially hinge it on saying well we weren't expecting those kind of results and which came in the midterms to be as strong as what they came for the democrats so we're going going to have to press pause.

30:16Georgie Frost: Timing is always key with IPOs. If you get the timing ready, it ain't good.

30:21Lee Boyce: All right, Lee, are you headed for a bleak retirement? And is your stingy employer to blame, asks our Tanya this week? Now, you might think earning a decent salary means you'll have a decent pension, but not necessarily. Lee, what's all this about? How can someone earning considerably less end up with a better pension than a higher earner?

30:39Georgie Frost: Well, it's about, again, it's about having your own control and realizing what it is how much money's going in and how much your employer's putting in for you and if it's the bare basic minimum it doesn't really matter you know even if you are a high earner you might not be putting in as much every month into your pension as someone who's a middle earner but their company their employer you know matches what you put in or even doubles what you put in and i've always said this i think you have to look at what an employer is offering in terms of a pension to see how much of a salary bump that would be for you over the course of the year because it's vitally important if you've got an employer that you put in five percent and they put in ten percent I mean that is massive it's absolutely huge it's complete no-brainer to max that five percent out and making sure that you're then getting the tax relief and getting that payment from the employer quite often that that's something down the road as in employers might not offer that straight off the bat it might be after a couple of years of oil service or that kind of thing but that's how it happens there's also this tendency sometimes i think as a higher earner potentially to not be completely thinking about your pension and sort of keeping really i'm talking very broadly here there's lots of people especially our listeners that i'm sure do but there's that kind of thing well i'm earning x amount of money and i'm putting x amount away in my pension it must be enough because you know that's that's what's coming out um i don't think that's always the case i think you've got to have a real handle on what's going on because if your company is doing a bare basic there's lots of companies out there that are to attract talent to attract people in to retain staff offering you know pretty attractive pensions and as we always say on this podcast it's vitally important that you're taking control of your retirement because we don't know what state pension is going to look like in 20 30 years time 40 years time however old you are and it's getting more and more expensive to have even a bare basic retirement.

32:34Georgie Frost: So the benchmark from Trade Group, Prentice UK, for a couple on a minimum kind of expectation, you're talking about needing£22 ,500 a year, single person that's£13 ,900. For a moderate retirement as a couple,£45 ,400 a year, single person£32 ,700. Comfortable retirement,£62 ,700 a year, single person£45 ,400. again i always say this as well there's no one size fits all in this this is just benchmark kind of you know almost spitballing there's lots of things that change in your life divorce thinking about the cost of care all of that kind of thing also needs to be factored into the calculations but it gives you a rough target to look at um you can go and have a check see where you are in terms of getting that comfortable retirement but as again as we've said on this podcast many times before a lot of people are blindly sleepwalking their way into having a pretty kind of pauper style of retirement when you know if you act now in your 20s 30s 40s even 50s to give yourself a bit of a bump and making sure that you're doing everything you can to maximize and get a good private pension you should be doing it and the control is all in your hands i'll go back to the point i just made it's so much easier to keep a handle on all this now there's so many more calculators apps websites um that you'll even help from your employer quite often who might put you in touch with someone you know even for some one-off advice to try and make sure that you're doing the right things um and hitting a target as much as you possibly can without impacting your day-to-day life now aka reducing too drastically how much you can spend for your day-to-day life when we're talking about things like mortgages getting more expensive because that's the priority.

34:25Georgie Frost: I think a lot of people see that short-time priority of mortgage. Okay, mortgage rates going up. I need every single penny I can get from my salary, which is, of course, I think human nature and completely totally understand it. And thinking that kicking that can down the road, I can make up for it next year. I can make up for it in a couple of years' time when I'll up my pension pot then. But you're missing out on those years of gains, compound interest. That's why it's really vital that you do go and check what kind of impact you're going to have when you tinker around with this. But if you are someone that you feel like falling short, you need to go and investigate your existing pension.

35:03Georgie Frost: You need to go and work out the current fund value and all that kind of thing. And figuring out, getting your head around all those jargon that's around the industry and making sure you feel like you're doing enough to control your own retirement, is what I would say.

35:17Lee Boyce: Finally, you may not have to rely on your pension. if you're someone who's relying on your inheritance to fund your future, you might be all right. But you might also be disappointed. Because while almost half of millennials say an inheritance is crucial to achieving their financial goals, new research suggests parents might have other ideas. And with people living longer, rising care costs, pensions being brought into the inheritance tax net from April next year, there could be even less to pass on. Lee, tell me about this research we're all banking on. The bank of mum and dad and gran and granddad, are we, when it closes its doors?

35:54Georgie Frost: This was an exclusive piece of research that came through to my desk earlier in the week. And I raised my eyebrows and I thought, really, is it that high? That many people are kind of banking on inheritance? And it was a big survey and it showed that just short half of millennials, so those aged between 30 and 45, said receiving an inheritance was crucial to them to be able to achieve their financial goals. Now, I don't know what the financial goals are, but I would suspect getting on the housing ladder, potentially upscaling. So going from point A, your first home, to point B, your second home, which can be a very difficult step to take.

36:29Georgie Frost: Or just saving enough for retirement, though. Or just saving enough for retirement, or it might be the cost of your children and whether or not you might potentially put them through private school or university or whatever it is. And then 55 % of Gen Z, so 18 to 29-year-olds, said the same thing. inheritance would play an important role in securing their finances now a huge flaw in that plan is i think that as britons we are painfully shy about talking about money anyway i think

36:57Simon Lambert: things have thawed out a little bit in the last decade 15 years or so but we are still painfully

37:02Georgie Frost: shy about talking about money and passing down wealth is one of those kind of like awkward conversations isn't it where i don't know as a as a someone who hits that right in the middle of that millennial kind of age group how do you have that conversation of being like mum dad uh how much money are you going to be giving me or leaving me you know it's kind of awkward isn't it and I I say that as someone who uh has absolutely zero expectations of any kind of inheritance for them either of my parents because they don't have any to give um but you know I can I can understand how this happens and then what I'd hate though and what I think like this might highlight is like if there's ever any kind of resentment you know that kind of resentment of like they my parents didn't give me enough when it should be like you just gotta pull up your socks go and work hard and make money but then it comes down to all of this generational kind of battle between you know the generation before found it easier to get on the housing ladder house prices have gone up accidentally they can afford to do it they can afford to give it to me but on the other hand And I kind of, if you have worked hard for many decades, why skimp and save and leave retirement?

38:10Georgie Frost: I'm very much at the mindset of once you finish work and you're in that kind of point to retire, go and enjoy yourself. Go and spend your money. You know, it's up to you, isn't it? You know, it's completely your prerogative, what you want to do. Equally, I kind of look at it from the other point of view. so I look at it from I'd much rather save and invest for my children to give them some money when they reach adulthood or you know potentially 21 or 25 one of those kind of milestones where I'm like okay I've saved all this money for you um which which is what I do and wife and I put away a certain amount of money each month for our children and that's it that's that's their inheritance they're getting it before any other debate is up that is your bit of money that you're getting uh to help you onto the housing ladder to help pay for university whatever it may be i think sometimes we're looking at it from the wrong way around we're not looking at it from trying to actually solve the problem at the beginning rather than kind of creating headaches later down the line in which families split families get uh frustrated with each other over money i can't think of anything more crass of thinking my parents gonna give me this inheritance And actually, of those people surveyed between 62 and 80, only 8 % said they planned to prioritise leaving wealth behind for beneficiaries and would reduce their own spending in retirement to do so.

39:33Georgie Frost: Here, here, well done, those people. I totally get it.

39:37Lee Boyce: I constantly tell my mum to just downsize, get herself a nice little flat and then just enjoy yourself. I mean, you're just going to give it to the government anyway. But what I think people do slightly forget, though, or underestimate is the age, average age in which people receive inheritance. So if you are someone who is planning on hitting milestones like buying a house or saving for your children, the Institute of Visual Studies did some research into this. The average age in which a millennial will receive an inheritance is 64 years old, which goes back to your point about if you want to help your kids, help them now when you can see them enjoy it and it can actually be useful.

40:21Lee Boyce: Because by 64, I'm not saying it's not going to be useful to have a chunk of inheritance, but it might be more useful a bit earlier on.

40:30Georgie Frost: I think that's vitally important, George. That was the point. You said it much more succinctly than me. That is the very point I was trying to make. And the other thing you have to remember and factor in on this, and I think I've keep on mentioning on the show recently, but it is care costs. Care costs is an incredible drain on people's finances. So on one hand, you know, I know quite a lot of people at the moment that fall between the ages of sort of 35 to 55 that are in that kind of really horrible sort of sandwich kind of parenting moment where they have their own children who may or may not be financially dependent or want some sort of money off of mum and dad to help out with whatever it is they're doing.

41:09Georgie Frost: But then they're also, they've got parents in care homes and they're paying out eight, 10 ,000 pounds a month and to make sure that they're having, you know, the most comfortable lifestyle they can possibly have in very, very old age. So there's also that to factor in. And I'll leave you the parting shot here from Mark Atkinson, who's the managing director at Willis Towers Watson, which manages Alliance Whitten, who did the survey. It says, the reality of modern retirement is changing with people living longer and the cost of later life increasing. With pensions soon falling into inheritance tax estates, anticipated family windfalls become even less certain, which can threaten financial goals.

41:46Georgie Frost: So while it's understandable that people hope for a financial helping hand from their families to reach major life milestones, there's a risk in relying on this to achieve financial goals. Regardless of whether there's a future inheritance, it's sensible to plan for a self-sufficient financial future. they are four key words at the end there self-sufficient financial future you have to take control of what you're doing and if you can go one step further and you do have children or you have relatives or whoever that you can help do it the other way around um i think it solves a lot of issues georgie i think you know when my children i like to think that when my children in their early 20s the amount of money it's not a huge amount that my wife and i put away and 75 pounds a month each i wouldn't say that's absolutely huge but i understand there's lots of people out there that wouldn't be able to do that but if you can you should and then i'm hoping by the time they are in their early 20s i can give them uh you know a lump sum as you say watch them enjoy it and that's that i think that's how i just like wash my hands with it it's like i'm the sort of personally when i'm in retirement i'm going to be living the life of luxury georgie i've worked hard for my retirement pot and i'm going to do what i damn want with it yeah lee yeah

42:54Lee Boyce: You spend it on those business trips. Lee's other tip of the week, apart from spending all your money.

43:02Georgie Frost: Just spend it all. Spend it all now. That won't be good for runaway inflation and base rate decisions. No, you definitely, definitely, definitely, definitely should go away and go and find the best savings deal you can find. I know I said it earlier in the show, but we are in a position now where there are lots of rates out there above 5%. then providers are clabbering over each other to offer the best deals. And of course, in the budget recently, we had the news about the cash ISA rate not dropping down to£12 ,000 for under 65s, but remaining£20 ,000. And ISA is the most important tool, and it's become even more important tool in terms of outside of pension and all that kind of thing, mainly because if you are an additional rate taxpayer, you have no personal savings allowance.

43:51Georgie Frost: the interest on that savings is going to go up to 49 % from April 2027 from a move in the budget up from 45 % and for higher rate taxpayers you get a£500 PSA it's going to go up from 40 % to 44 % the tax rate on your savings interest and ISA is more important than ever so bare minimum go and find yourself the best savings rate next step go and make sure whatever you're doing with your ISA you'll get the best and most out of it because it is vitally important.

44:20Lee Boyce: All right, that's it. Lee, thank you very much, Simon. Thank you very much. And thank you for listening. You can keep up to date with all the latest breaking money news. Just go to thisismoney.co.uk or download the app. And if you have any comments or questions for the team or anything you'd like them to look into, Lee.

44:34Georgie Frost: Yeah, you can email us at podcast at thisismoney.co.uk. You can access at thisismoney. And you can also leave comments in where this article live on the This Is Money homepage.

44:45Lee Boyce: Yeah, and if you like our podcast,

44:46Georgie Frost: why not rate us wherever you found us?

44:48Lee Boyce: it helps other people find us too.