How good are public sector pensions - and should we cut them or protect them?

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1:07Go on, get answers you can trust. Remember, investment involves risk. Now back to the show. A row is brewing about the cost of gold-plated public sector pensions. The total cost has ballooned to almost£6 trillion this year, leaving households on the hook for an average of just over£200 ,000 each. That's according to new analysis. It comes at a time when private sector workers face a raid on their retirement savings, with the Chancellor attacking salary sacrifice schemes used to build pension pots. The government disputes these figures, but pension experts say the gulf between public and private sector pensions is getting indisputably wider.

1:44So what can be done about it? Welcome to you, guys. Simon, firstly, just how good are public sector pensions compared to private? public sector pensions compared to private sector pensions are infinitely better. Well, they're not infinitely better because you can't really be infinitely better than something. But the fact that I reached for that phrase explains how much better they are. The big difference is that firstly, if you are in a public sector pension scheme, you are almost certainly in a defined benefit scheme and this means that your employer guarantees to pay you a set income in retirement based on your earnings when you worked there now most of these defined benefit schemes have shifted from what used to be known as final salary used to get a percentage of your final salary so basically your salary on the day you left an organization to career average but even then they are far more generous but more importantly guaranteed when you compare them to a private sector pension the vast majority of which are now defined contribution schemes in which you pay some money in your employer pays some money in it goes into an investment pot and the amount of retirement fund that you have ready to to pay for your pension years depends on the investment performance between then and when you retire and then when you retire you have to decide how you're going going to turn that pot into retirement income.

3:14It used to be that most people bought something called annuity, which is a financial product that guarantees you an income for the rest of your life and can pay one to your surviving partner potentially. But most people now keep their pension invested and draw on it. And keeping your pension invested, drawing on it at the right level to make it last for the rest of your life and doing all of the complicated stuff that means that your pension lasts you and you get enough income is actually quite difficult and a task that we're laying on people that most people are ill equipped to deal with if you work in the public sector you don't have to worry about this so to give an example of a scheme in many of them what you do is you accrue your pension at a rate of 150th so for every year that you work there you accrue one fiftieth of your salary as i said it's not final salary anymore tends to be done as a career average but so say for example that you worked somewhere for 30 years you did 30 years working in the public sector well in that case you would have accumulated 30 fiftieths i.e 60 percent of your average salary over the time that you have worked there and for many people that number is going to skew towards the higher end of the salary that they've earned over those years rather than the lower end that they've earned over those years and you know to put it in context um if you were to try and buy that same amount with a pension pot private sex pension pot defined contribution pension pot it would in most cases cost you you know a very very large amount of money.

4:57We're talking hundreds of thousands of pounds. So how did we get to a stage where the cost is almost six trillion and this new analysis saying that it leaves households on the hook for an average of just over 200 ,000 pounds each? That is quite a hefty figure. it is and firstly as you noted the treasury disputes this figure right so it says it's more like 1.4 trillion but it's a few trillion between friends what is a few trillion between friends um this is based on some research by a man called neil record uh who is a former bank of england economist okay so it's not just any old person right someone who knows knows their onions and this is the overall projected cost of current and future inflation linked public sector pension payouts right so it's all the money we're paying people now all the money we've promised to pay people in the future and the great thing about defined benefit pensions is those promises are pretty cast iron okay your your employer has to go bust for them not to meet that promise and if they do go bust there is a lifeboat fund the pension protection fund which if you haven't retired yet will replace 90 up to a certain level but if you have retired will guarantee 100 of your pension okay so they're they're really good okay there's a pretty good guarantee on there so this is the estimated cost of of all of this and these are quite generous promises that have been made to people and illustrating that is how much the employers put in as a contribution so this is something that is slightly misleading to get your head around in the sense that most of these pension schemes are what's known as unfunded so the pension scheme itself doesn't have a pot of money that it then uses to pay the people who are retired and pay and then eventually pay all the people who are working now who are going to retire in the future instead the contributions are paid to the government and in return for that current retirees pensions are paid by the taxpayer so but there is a nominal kind of contribution amount that the employer makes right or actually not nominal it's a contribution amount the employer makes and there is a contribution amount that the employee has to make in order to get that in order to build up their benefits but nhs workers currently receive 23.7 percent employer contributions into their pension teachers currently receive 28.6 percent employer contributions into their pension now the employees themselves also have to contribute and that tends to be done on salary level so at the lowest level in the nhs you pay in 5.2 percent and at the highest level above 55 000 pounds you pay in 12.5%.

8:01Now 12.5 % is a lot more than most people are paying into their private sector pensions. That is true. The auto enrollment amounts are 5 % from you, 3 % from your employer. Many employers will pay more than that. They might match it, for example. But you will also notice that the employer contributions are a hell of a lot more than in the private sector. The reason why this is controversial is because ultimately, because they are unfunded, they're not funding themselves, these pension schemes. Everyone as taxpayers is paying for these. Now, I actually am not on the side of being really anti-public sector pensions.

8:45I think people who work in public service they deserve a good pension right but I think everybody deserves a good pension and what what I'm not in favor of is a race to the bottom where we hack away a public sector pensions and make them worse to the point where they're as bad as private sector pensions what I am in favor of is making private sector pensions better we used to have world-class private sector pensions in this country and then with the demise of defined benefit schemes and companies and final salary schemes and companies, which was due to a number of mistakes made by different governments.

9:19One of them is blamed on Gordon Brown, but Margaret Thatcher didn't help by allowing companies to effectively spend their surpluses. I'm in favour of making private sector pensions better. What I'm not in favour of doing is keeping public sector pensions as a much, much, much better option that we are all paying for, including those of us working in the private sector whilst making private sector pensions worse which is what the government is currently doing and why this is in the news at the moment rachel reeves in the budget staged an attack on salary sacrifice which is a scheme that is used by many private sector workers to pay money into their pension it helps them get more into their pension it gives them a little leg up it doesn't like totally hold pensions under the water.

10:09It's not going to sink private sector pensions, but it is going to lead to less going in. And she has been warned that there's a strong chance it may lead to employers being less generous with their contributions, which in the scenario where public sector pensions remain untouched by this, and we're all paying for them, doesn't feel particularly fair. And the important point is, is that most public sector pensions operate as a net pay scheme and that means that those contributions that are being made by the employee comes out before tax right so so they're they're already getting a similar benefit to salary sacrifice which is why this is so controversial helen what can be done about it though because there is no government certainly no labor government that's going to say do you know what we're going to just scrap that you have to stick all your own money into so that like public sector pensions i can't imagine are going to have a wholesale change anytime soon.

11:05And that figure is still pretty high. I mean, even if the Treasury is right, and that figure that they've given is a quarter of what this guy Neil Records says, you're still talking about£50 ,000 per household. And Helen, at a time like now, you know, we'll get on to cost of living crisis in a minute, but that£50 ,000 could very well be put in people's own pension pots. So what's the solution here? if it's not a race to the bottom, how do you lift all ships, as it were? You're right. It's so tricky, isn't it? And actually, as Simon said, the way that these schemes work, the public sector schemes, is essentially that the people who are working and paying in today are essentially funding the pensions of people who worked in the public sector who are now retired.

11:49So if you were to change that scheme, it leaves an instant funding problem. You know, if you were to say, I mean, as you said, it's unlikely to happen, but if you were to change public sector pensions to the kind of system that the private sector has where you pay in and you have a pot, then how do you fund the pensions of public sector people who are already retired? So it's a, you know, I don't even know how that would begin to work. It would be a huge cost. And it comes at a time as well when people, especially in the private sector, aren't saving enough for their retirement. So it's, you're right, this huge kind of gap is emerging.

12:28And that, you know, it's going to become incredibly difficult, I think, you know, people already aren't saving enough. And now the government's doing things like capping salary sacrifice, which is, you know, encouraging people to save into their pensions, even less. And, you know, do we have this situation where there just becomes a bigger and bigger gulf between public and private sector pensions? I mean, the government ostensibly could tell employers that they have to pay more into their workers' pensions, but then that will lead to things like, you know, they'll lay off people, you know, companies will probably cut jobs.

13:01So all those sort of moves would have a sort of adverse effect probably in the end. I mean, I don't really know what the answer is. If you want people to pay more, then you make it more tax advantageous. But they're obviously sort of doing the opposite of that. So, yeah, it does become extremely difficult. Simon what have some of the experts say I'm sure there's plenty of think tanks that have been mooting some ideas about what we can do I mean look there's an option in which you just do the same thing that happened in the private sector you say right from this point on we're gonna stop having defined benefit pensions in the public sector the benefits that people have already accrued they will be paid but from this point on you you won't accrue new benefits and anything any money that you pay and will now go into a defined contribution pot would seem very very unfair to people but that is what has happened to people in the private sector it happened uh during my employment at my company when i started the daily mail had a defined benefit pension scheme and then it became unaffordable and it had to stop it and it has a defined contribution scheme instead which is a generous one compared to water enrollment um and that is a situation that played out at companies across the country and and we do have a two-tier pension system the other option is is that you allow people who are working in the public sector already to continue accruing their pensions under defined benefit schemes but new starters don't get to to join you can't go back on the promises already made and as helen points out we've already made them and we're already on the hook for those so it's going to continue to be expensive quite a long time but if you take someone for example who ends up with like a career average earnings you know 50 000 pounds which is a lot of money but bear in mind inflation etc and if you're looking at someone midway through their public sector career it's highly likely that that could be the case if they worked for 30 years and got 60 of their average salary that would be a 30 000 pound a year pension that would put them on track for a moderate retirement, according to the Pensions UK benchmark figures that we love so much on the This Is Money podcast, they'll be able to afford a couple of holidays and some Sauvignon Blanc maybe.

15:19For the equivalent pension pot you would need in the private sector to get your£30 ,000 a year income, you'd need£750 ,000. That is way bigger than most people's pension pots will ever be it is also a figure that you may notice will tip you into inheritance tax in the future because the government also decided to pull pension pots into inheritance tax which you know they said it's because rich people are using them to pass on wealth free of tax which is only true for those people who died before the age of 75 after the age of 75 income tax was charged on beneficiaries anyway and rarely is dying before 75 because is it a win but the point is is like actually those people are just doing what they were told to do starting saving when they started work building up a pension pot that is at 750 000 pounds only just going to get them a moderate retirement and is the equivalent of what middle higher-ish earner in the in the public sector would get now obviously those public sector pensions can't be inherited because they they die with you but the benefits do go to your spouse and there are other benefits that come with them better death in service benefits and things like that but like i said i don't think that we should have a race to the bottom and made public sector pensions worse we might need to make them a bit less generous but you're then making them worse anyway but i do think that we should recognize that there is a two-tier system and we should stop attacking private sector pensions and you know and pension pots which is what has happened and bear in mind the previous government okay it can't wash its hands of this they were the government that over the years in power slashed the lifetime allowance down to the point where it caused so much problem that the nhs was creaking at the seams they slashed the annual allowance when gordon brown left as chancellor that the lifetime allowance and annual allowance were way way higher than they were when the tories left power and then i guess the other thing i would say is like if you do work in the public sector for god's sake definitely sign up to your pension scheme i mean there are loads of people working in the public sector who just do not realize how good their pension is me and helen were talking about this yesterday recounting close friends and family that we know who we've had conversations with and we're like no no no your pension is really good and i oh it's like no no no it's really amazing i mean i've got a friend who's a doctor right and he's like yeah but i have to pay a load of money into it i'm like yeah but what you get in return is amazing it's so much better than what we were at to dinner i was like it's so much better than i'll get that he'll get that he'll get i'm like this is a really good deal and i also think that when we're talking about people's pay we should probably be talking about their entire package.

18:17So when you talk about teachers pay, when you talk about resident doctors pay, you know, when you talk about their pay, we're not accounting for the fact of, you know, the pension contributions going into there, which all of a sudden starts to make people's pay look an awful lot more generous. And maybe we should do this with the private sector as well. And it's true in the public sector. It's a lot more rigid. There are pay grades. It is harder to climb the ladder. But the median wage in the public sector, I believe, is still higher than the median wage in the private sector. All right, then.

18:48I want to stick with salary sacrifice, because there's a bit of research done by the pensions consultancy, LCP, which took a look at who would be hit the hardest with the new rules announced in the budget, making, obviously, salary sacrifice less lucrative from 2029. And they found it was middle-income earners. So, actually they could be paying more effectively than those who are earning even higher. And when you throw in the simultaneous freeze on income tax thresholds and the level at which graduates pay back student loans, they're saying those earners on salaries between 40 and 50 grand will be hit the hardest.

19:22Helen, there's a lot of maths in here. I'm famously not very good at maths, a lot of numbers. But how does that work? So it does seem to, as with many things at the minute, it's people in this little middle earning band who unfortunately are going to take the brunt of this. So as we know, at the minute, people use salary sacrifice. They essentially forego some money from their salary and put it into their pension. Instead, that reduces their salary on paper, which means they pay less national insurance and income tax, and the money also goes into their pension. So it's been a bit of a win-win.

19:59As you say, Rachel Rees is now capping the amount they can do that with every year at£2 ,000. So that means that people are going to be paying more in national insurance. As you said, LCP has run these figures and they show that, yeah, middle earners will be hit more by this national insurance rise and those earning more could actually pay less extra national insurance. The reason for this is that employees earning up to£50 ,270 a year. So that's the threshold for the higher rate tax ban to pay the full rate of employee national insurance. And after that, on earnings above that amount, it drops to 2%.

20:40So that means that basic rate taxpayers pay 8 % in national insurance contributions on any amount sacrificed above the£2 ,000 cap. And those earning over£50 ,270 will pay 2 % on anything above that. So someone, say someone has a£40 ,000 salary, they sacrifice 5 % of their income into a pension, they don't pay any more in national insurance. But if they do, if they double their contributions, if they pay in 10%, they'll end up paying£160 more in national insurance. Now, the most affected are those who are earning£52 ,000 and making a 10 % contribution into their pension, they'll end up paying£256 extra in national insurance.

21:26So you should say as well, this all comes in from 2029. So not for a few years yet. However, the kind of stinging this, so someone earning just£4 ,000 a year more than that, someone earning£56 ,000 a year and contributing the same amount will pay just£72 more in national insurance because of this sort of cliff edge where the contribution amount goes down. So someone earning even more than that, someone earning£100 ,000 a year and contributing 10 % will only pay£160 more in national insurance. So yeah, the people in that kind of middle salary band are going to be hit worse by it, which is unfortunate.

22:06Again, people in that middle band are going to be, you know,£256 a year is It's not a huge amount, but it doesn't feel nice, does it? If you know that someone earning double what you are and paying the same proportion into their pension is paying significantly less national insurance on it than you. Not particularly fair situation, I think some would say. Simon, is salary sacrifice, though, is it still worth it? Or should you just up your pension contributions because you're going to get taxed on it anyway? Do we need salary sacrifice beyond that two grand? it's beneficial to people and it's a good system and it works and i tell you the the other thing the kicker on this right is the reason why salary sacrifice is so good for workers is because you automatically get your full tax relief with people who get paid who pay their pension contributions off from after-tax wages what often happens is you automatically get your basic rate tax relief so you'd get your 25 % uplift to take you back to where you were before 20 % tax was taken off.

23:09But then you have to claim the higher rate tax yourself, either through a tax return, filling in a form, writing to the tax man. And lots of people don't do that. Lots of people miss out on the extra tax relief. And that saves the government an awful lot of money. So that's one of the other reasons why the government doesn't like salary sacrifice. it is still worth it if your worker's got a salary sacrifice scheme use it i mean it makes sense to do it you will still be able to salary sacrifice after this is just a cap on two thousand pounds on the national insurance benefits you can get if people then don't salary sacrifice so much into their pension their employers will have to pay more national insurance because they'll be paying them the money instead and to increase their costs it's still possible to use salary sacrifice even when this comes in bear in mind it's not coming in until 2029 it still will still be possible to use salary sacrifice above the two thousand pound cap you just won't get the national insurance benefits you could still use it to avoid the tax traps and things like this but that's where this kicker comes in for the 52 000 pound people right if you earn about 50 000 pounds you are getting an absolute pasting from the frozen thresholds in terms of income tax i mean everybody's getting an absolute pasting from it but you're right at that point where you go from 20 to 40 and so your pay rise is going to get hit by 40 when actually if that band was moving up with inflation you should only get hit by 20 and it and and it's going to be taking a big chunk out of it so if you only get an inflation matching pay rise actually you're 20 worse off that's it for part one

24:57I'm joined now by Blairam Gashi of Charles Stanley Direct for our weekly Investing Explained feature. Blairam, we've got a question here from a listener. I'm 40 with two children aged 10 and 8. I have a£300 ,000 pension pot and have£600 ,000 of equity in our home with my husband, who also has a similar sized pension. If something terrible happened and we both died, would our children face inheritance tax? on our pensions? That's a very good question. Look, under current UK rules, you know, your pension is not part of your estate for IHC purposes. So normally your children would not pay IHC on those pots.

25:39So£300 ,000 from the wife and£300 ,000 from the husband, if both of you died theoretically. However, following last year's budget, there is a major change coming. And from, you know april 2027 pensions will essentially be part of the estate for iht calculations so in in the example just now currently you're fine but when this change happens it's a slightly different picture um because if you calculate your pension parts plus the plus the home we're looking at some iht being payable around 200 000 pounds if we look at the nil rate ban and the resident real neighbouring that you both would have in this calculation.

26:19So in a nice long-winded way as things stand right now your pensions are outside of your estate but in 2027 that will change and can possibly impact you. So now it's more important than ever to kind of review your estate plan make sure that you know you complete nominations and expression of wish forms on the pensions and you know seeking some advice to mitigate IHC and strategies behind that become more valuable. Leram, thank you very much. Thank you. Welcome back. Ah, Christmas, a time for mince pies, slayed on repeat and nostalgia. And would it invoke small memories at this time of year than the Argos catalogue?

27:00I mean, it wouldn't invoke memories because it's gone. I mean, maybe quality streets as well. But alas, while the chocolates remain a festive staple, the catalogue is but a relic of bygone pre-internet era. The question is, is Argos about to follow suit? The retail giant's most recent full-year results showed it had slumped to a loss while it has also slashed thousands of jobs. Who remembers the Argos catalogue, though? Wasn't it? It was a staple of Christmas. Big, big, big fan of the Argos catalogue. And actually, I think potentially missing a trick there. I mean, we had my niece and my nephews to stay the other weekend.

27:40We looked after them. My niece, Lila, is six. And she arrived with the Smith's Toys catalogue. And she did a lot of reading of the Smith's Toys catalogue, reading and circling all of the things that she wanted. And then we spent a very enjoyable 45 minutes on the sofa one morning whilst I was having my coffee and toast. and Lila was taking me through the entire Smith's Toys catalogue, showing me every single thing she had circled. Yeah, and we went from the first page to the last page. Wow. And you're advocating a return for the Argos catalogue. I'm just saying that, you know, it's really difficult getting kids to tell you what they want for Christmas, even though kids normally want a lot of stuff.

28:26And this was pretty helpful. Arguably, she's going to get more presents off the back of it and they're going to sell more toys. The revival of physical media is happening. Gen Z are buying albums. They are buying cassettes. They love photos, everything. Give them a catalogue. What do you want a catalogue? Look, I don't want to make, you know, 2 plus 2 is 4 here, Helen, but look, no Argos catalogue. Bad figures. Job losses. I mean... I mean, I do think to an extent, you're right, you know, I don't know how much it cost them to print out those hundreds of thousands, probably millions of catalogues.

29:04You know, I remember, do you remember like just before Christmas, you would go, or a while before Christmas, you'd go to like your local Argos and they were outside the store. They would have like a pallet full of catalogues and you'd just be able to take one. Or like a huge wooden pallet full of thousands of catalogues and people would just be like, yeah, everyone would grab one. It was such an institution, wasn't it? I think, you know, it hugely nostalgic. My mum used to work in Argos as a Christmas job, right, when I was a kid. Like every, yeah, every Christmas you'd go and do like a couple of months shifts in Argos.

29:34And it was honestly insane. Like people would try and bribe her to like put the best toys by for them. So like my friends' mums would be like, whatever the big toy was that Christmas, like, you know, I don't know. They'd be like, oh, you know, remember those like bouncy balls, those like bouncy balls that used to stand on little girls? I remember one year it was those. And everyone in my school was like, can you just, I know you work in Argos, can you leave one behind for me and I'll come and buy it? And I was like, no, that's against the Argos. But Argos was huge. It was where you went to do your Christmas shopping because it had everything.

30:07And it still has everything. But I think the issue is probably, I mean, Argos is kind of like Amazon in real life, pretty much, isn't it? Like it has everything, everything that you want. I mean, not to the ludicrous extent that Amazon has, but it's the same concept. you know you go to one shop it has most things that you might need in a big sort of warehouse situation and i think over the years argos decided that it wanted to be more like a bit of an amazon so they stopped the catalogue in 2012 it announced plans to reinvent itself as a digital retailer and then obviously it was sold to sainsbury's in 2016 which meant that the stores are now inside Sainsbury's supermarkets.

30:49So it's kind of moving away from this physical retail presence on the high street, which obviously to save money, you know, expensive rent, staffing, that kind of thing. And I think Argos, it could be this sort of big online business. But I do think, I do think that seems to have backfired. I get that shops can't just keep open endless doors, like on the off chance that some customers might wander in. But I think having like a presence is still important. I mean, I don't know if people would kind of just pop into Argos on the, you know if they're just browsing the shops it's not you don't really can't really window shop there but it's i do think having an argos on your local high street it's it's quicker than ordering something online and i think that convenience of just popping and getting what you need like i do think that's something that people actually still want especially you know if you've got something big you need to buy um i recently was buying uh yeah buying a few bits of furniture from habitat which is now part of argos and you know much easier to just go there pick it up take it home than pay X amount for it to be delivered to your house, you know, wait for a few days for it.

31:51I do think there's situations where Argos actually is still handy. But then if you take away the stores and, you know, your Argos is in a little corner of your Sainsbury's, it's not really sort of front of mind. I think maybe people have just sort of forgotten about it. Well, the front of mind is really key, especially when it comes to the catalogue, because that's it. Why would you go to Argos? Why would you go to Argos? You don't see it, except if you go to a big Sainsbury's. Not every Sainsbury's. Simon, is this, I mean, Helen made some, really interesting points there. And the one that I'm landing on is the Amazon wanting to try and be like an Amazon.

32:23The reality is we live in an Amazon world, an Amazon retail world. Can any company compete with that? Is this symptomatic of a wider retail problem? Or actually, is this something that is unique, more unique to Argos? Because I thought that Sainsbury's tie-up was supposed to reinvigorate save argos well i mean you can compete with amazon if you timu don't uh and the quality of stuff on amazon has has got a bit worse actually so you know my father-in-law who regularly shops on both says basically he might as well just order from timu oh wow race to the box for some stuff and he's he ordered the same thing from both of them and everything like that but the point is i think argos has massively missed a trick in fact if you go back far enough in the this is money podcast archive you will discover the episodes where we were talking about argos being bought by sainsbury's and why it was buying it and the reason why sainsbury's bought argos or one of the reasons is because argos had absolutely nailed click and collect it's hard to it's hard to remember now but argos absolutely had click and collect sorted you could order something you couldn't necessarily go get it straight away because it wasn't always in the shop but you could probably get it the next day right and the ability to do that and go into a shop on the high street and get that thing as helen said was invaluable especially at the way things have changed i mean it's become unbelievably easy to get amazon or somebody else to deliver something to your door almost instantly but you know what's going to happen like someone's going to come around play knock down ginger when delivering it randomly give it to someone else you might not be in it might be something that you don't want left on your doorstep thrown over a fence given to a random next door neighbor that you're never going to find out who it was all that kind of stuff you might actually want to go into the shop and get it um and that's convenient for people and there was this idea that they would shift it into Sainsbury's and people would do it in Sainsbury's but it's just shifted out of town it's shifted out of mind and if you went into Argos at Christmas it was always busy um you know it did great business and I think they forgot what their unique selling point was they then tried to make the website a bit more of a marketplace a note to any retailer who is considering doing this but and a note to those who have already made this mistake.

34:55Do not try to turn your website into a marketplace where you are selling your own stuff and also random stuff from other people. Consumers do not like it. If consumers want to buy random stuff from loads of people, they will go to a small but increasingly popular website called Amazon, right? They're not going to come to you and you can't compete with amazon on that stuff what they want from you is to buy something from your shop right whether you deliver it or often because they want to go into your shop and get it what they don't want to do is have to spend 20 minutes scrolling through endless amounts of stuff on sale with no obvious way of working out who's going to sell it to them or when they might get it right that's not why we're on your website if we wanted to play that game we could go to amazon or timu or someone else okay and that's a big mistake the marketplace thing and then also it's this unique selling point of being on the high street it's like look at nationwide we talked about this a few weeks ago nationwide is hugely benefiting from that promise to keep those branches open as all the other banks shut them nationwide building society kept its branches open it's now the last branch of town in loads of places this has become a virtuous circle it's picking up more customers those customers are more profitable customers are happy people are rewarding them read the comments on the story the exclusive story we had from nationwide about it continuing its branch promise to 2030 they are literally 98 of hundreds of comments of people going well done nationwide thank you nationwide this is great other people could learn from it so i would say get yourself back on the high street support the high street what makes it what makes play what do people say is make somewhere a great place to be a thriving high street argos get yourself back on the high street get that catalogue back in people's hands yeah we will come back to you absolutely and councils sort out the parking so people can park in town oh yeah as well yeah just throw that in while we're while we're on the subject um right we're going to stick with shopping because it's been four years since we first started talking about the cost of living crisis while inflation has fallen back energy bills have eased somewhat, we are still feeling the pinch a fair amount at the supermarket checkouts.

37:21Why are food prices so high? And is there anything the government can actually do to help? Helen, what's been happening to food prices over recent years? Everyone knows that they've been going up because everyone sees it week in, week out. I think this is one of the most obvious indicators to normal people of inflation and of where things are you know for years we've been talking about oh god like nine pounds for a bottle of olive oil like lure packs how much like these conversations have been going on as you said for for four years or more and i think people were thinking you know we've seen energy bills were obviously incredibly high you know when they saw sort of four thousand pounds a year and they've come down they're still expensive don't get me wrong like they're still much higher than average but they're a lot better than they were and i think people thought that the same thing would happen to the price of a supermarket shop but it hasn't um so it's still far outpacing inflation even though inflation has been coming down so october the headline rate was 3.6 percent and most other areas of spending and inflation is falling as well but for food and non-alcoholic beverages in october it increased by four percentage points so it went up to 4.9 percent so really really stickily high this sort of food inflation is and and it's across all kind of things so driven by increases in bread cereals, meat, fish, vegetables, sugar, jam, honey, you know, real sort of staples that you can't really get around buying.

39:06So why is this? In essence, I think it's because companies that produce food, farmers, are affected by all of the other sort of inflationary pressures that we have. So obviously there, energy costs went up when energy prices spiked. And unlike domestic customers, they don't have a price cap. So they were subject to these huge, huge prices that are still kind of stinging from. Also, changes to minimum wage, to employee national insurance. Obviously, factories, farmers are affected by all those things as well. They're putting their costs up. And, you know, supermarkets for a while have been trying to, I mean, it sounds insane because shops are so expensive, But they've been kind of trying to limit, you know, not pass on all these increases to consumers because they want to keep people shopping with them.

39:57And, you know, they want to sort of stay competitive with other retailers. But I think they're now saying we've had to put up our prices because it's just not sustainable to kind of keep them artificially low. You know, people say, oh, the supermarkets are kind of ripping off. Actually, their margins aren't that high. I think their margins between 1 % to 3 % which compared to other things you buy isn't a lot so yeah, food has been really expensive for a long time in summary It's been a wild time I mean, who can forget security tags on packs of Lerpac as you said there, Helen Simon, Helen mentioned there are lots of reasons why this might be the case but I don't want to point the finger anywhere but there was speculation that, you know Some brands maybe might be sort of taking advantage of these sort of cost of living noises.

40:50So they rose prices anyway. Is there an element of that going on? And the reason I'm asking you that is because you think about energy sector and you think, well, it's got a regulator. I don't think supermarkets have a regulator. Do they need one? I know that the Chancellor said in the budget that she wants to make the cost of living a big priority. but of course no measures in there to ease the cost of our grocery shop so you know what what can they do greedflation is what you're referring to yes that's the one greedflation that's what we termed it this was back in the kind of cost peak of the cost of living crisis and just after it actually and it was a lot of brands big name brands so if you're buying branded stuff people notice the cost of that going up hugely and well above inflation now the companies involved denied that they were doing this um but the the pricing seemed to indicate that they might be taking advantage of basically of their defensive position as brands with moats warren buffett style moats where basically people will continue to buy their product you know it's considered unique there are many people for whom heinz ketchup is the only ketchup that they will buy i will admit i was one of those people for almost all of my adult food buying life the only ketchup i would buy was heinz ketchup and i stopped buying it just after that kind of greedflation era because i was just like i went in one day i was like i am not paying that when i can buy that supermarket owned brand ketchup for a third of the price and you know what if you find a decent supermarket owned brand ketchup it's pretty good so yeah there was this greedflation thing now producers will tell you that energy prices etc you know huge rise in energy prices if you look at a uk producer for example so let's ignore the big global brands but if you look at a uk producer they have got huge rise in energy prices and energy costs more in this country than most other comparable countries large rise in wages large rise in the cost of employing people due to the national insurance hike extra costs due to brexit and you know extra kind of regulatory costs that have been introduced to them so they have seen a substantial increase in their costs and when you add all of this together then it adds up to a lot but then you're also seeing inflation coming from farms from the from the raw ingredients of our food for example even vegetables climate change has led to a number of extremely sketchy years of weather you know very long periods of dry followed by very long periods of wet followed by very long periods of dry and it's causing havoc with farmers my brother-in-law's vegetable farmer is constantly bemoaning the weather you know and not to come all clerks and farm on this but it does matter It does make a difference.

43:46And it really didn't help farmers when the decision the government made was to hit them for inheritance tax after the worst harvest in memory, basically. And this feeds through also, you know, grain prices feeds through to the cost of meat as well. Beef and veal inflation hit 27 percent in October.

44:1227 the cost of mints beef mints is up something mad like 30 something percent causing people to shift to pork mince it is or buy less of it and use smaller packs and things like that and yeah okay you can make different choices but ultimately what this means is you're having to make different choices and it's making everybody feel poorer and as helen said the price of your shop and the stuff that goes in your basket is something that you really notice. Often you don't notice it for a long time until you really do notice it. And then you really, really do notice it. Is the pain going to be over anytime soon?

44:51I mean, this is the problem with inflation. Prices go up. If inflation slows, it doesn't mean the prices aren't still going up. It's still going up. And it's not like they go, oh, right, well, inflation's not really high anymore. We'll just bring down the prices they stay there and then they just build on that price so is there hope is there a light at the end of the food tunnel bloody well hope so because i really like steak no i mean there is potentially food prices aren't necessarily one of those things where it always gets more expensive you do see prices spike and then come down it does happen some of those costs i think are going to be there forever and they're not going to get cheaper but i think that some of things will potentially come down in price.

45:34The pendulum does swing the other way, but probably not going back to where they were, which is bad news for people like me who quite fancy a steak for their dinner. Finally, premium bond winners. They might be random, but there is one elite group, Helen, that has won a top prize more than anyone else. Who is this elite group? So this elite group, Georgie, are people with the name David, with the name Susan, John, Michael and Peter. So we'll head down to change our names by deed poll then. Exactly. And that will definitely work. So yeah, crack on. Change your name to David, John, Peter, Austin.

46:21I left us there that Helen did quite well. the top 100 yeah so Helen's up there no but I do find myself compelled to sort of search the list for Jennifer, Alison, Philippa, Sue, Deborah and Annabelle too did they make it but what is interesting about this list though Helen are there can I say this they're quite some of them are quite older names yes exactly and Helen included no it's fine I always say this to my mom what were you doing? Anyway, it's fine. I'm over it. Yes, you're right. So this is some exclusive data that NS &I has dug into for us. And they've looked at the names of people that are most likely to win premium bonds.

47:06Do go and look at the story on the website. You can search through the whole list by year and see the full rundown of the names that are most likely to win. Yeah, you're right. I mean, obviously, there is a large element of this that is, these are the people that are perhaps more likely to own premium bonds, you know, perhaps older people. Although I do think younger people are actually increasingly kind of looking at premium, even some of the younger people in our office. I mean, maybe we're a bit biased being sort of financial journalists, but I do think there's maybe a wider age spread than you might think in premium bonds.

47:40But yes, obviously, there is an element of this that is, are these just the people who are most likely to own premium bonds? But, you know, it's a bit of fun. See if your name's on there. It's, yeah, you know, premium bonds are a fun product, aren't they? Have a look at our fun little list. It all becomes clear now why Lee's had such bad luck, Simon. There ain't no Lee on there. Exactly. There ain't no Georgina either. I count George, though. I think that's totally legit. Really? I'm 53. That's man called George, if I'm going to be entirely honest. Unlikely to be that many of them are women. Simon's on there, 45 Is it?

48:19I missed it Yeah, Simon's on there But it's quite an old name When I was at school, we had a lot of Simons in my year Now there's hardly any babies called Simon I was in the Simon boom They're all called Noah now When we're recording this podcast In about 35 years time We'll look at that list, I tell you, Noah's going to be massively featuring Yeah, Oscar as well That's going to be up there Alright then, Simon's stat of the week Okay, my stat of the week my stat of the week is related to something that i said earlier and i thought i should probably look up what the actual answer is is the median salary higher in the public sector or the private sector the median salary which is the one that if you put everybody in a line and you chose the person in the middle and is generally considered to be a better representation than the mean average The median salary in the public sector is£39 ,943.

49:19The median salary in the private sector is£32 ,376. That is from the most recent ONS figures. So the median salary in the public sector is well ahead of the private sector. And interestingly, if you look at the percentiles, right there's comparisons of the percentiles here people in the public sector the median person in the public sector is better paid all the way up the percentiles until you get to the 75th percentile at which point public sector 48 000 and 18 pounds private sector 49 192 and from that point on private sector is better paid but all the way up to that 75th percentile the public sector is better paid there was a lot of stats in there simon but it was a good one though it was good it was good i enjoyed it thank you very much simon right that is it you can keep up to date with all the latest breaking money news just go to this is money.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 simon uh email us at podcast at thisismoney.co.uk.

50:29Tell us what you think. Tell us how we could fix pensions. Also, send us your questions for Steve Webb. Pension questions for Steve Webb. He's keen to get them. We will be answering some sent in by podcast listeners. And come to thisismoney.co.uk forward slash podcast to join in the debate and read your comments. Thank you very much, Simon. Thank you, Helen. And thank you for listening. If you like our podcast, why not rate us wherever you found us? It helps other people find us too.