MTTM Podcast Episode 490 – Turn £100 a month into £37k a year pension, bonds explained & self-assessment check

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Why are bond markets hitting the headlines?

Summary:

In this section I explain why bond markets have hit the headlines. Bonds are essentially IOUs issued by governments and companies to borrow money, promising regular interest payments. When bond prices fall, their yields rise, and this can have significant impacts. The global bond market is larger than the global stock market, so bond market instability can lead to wider financial market volatility. Rising bond yields can influence borrowing costs for governments, businesses, and individuals, impacting mortgage rates as well as pension funds that invest heavily in bonds.

Key insights:

• The 10-year UK gilt yield has risen to levels not seen since the 2007-2008 financial crisis, and the 30-year gilt yield is at 1998 levels
• Persistent inflation, mixed signals from central banks, and economic uncertainty are driving the sell-off in bond markets and the rise in yields
• Rising bond yields can lead to higher mortgage rates, though current rates are still around where they were two years ago
• Pension funds may be impacted if the bond market instability continues, but rising yields can also mean better annuity rates for retirees
• For investors, the advice is to remain diversified and review portfolios regularly, as bond market volatility can spill over into stock markets
• Overall, the current bond market wobble, while notable, is not seen as a major crisis, but it is something to monitor closely going forward

Retire on the UK average salary (£37,500) whether you are 30, 40 or 50 years old

Summary:

In this section I provided examples of how someone aged 30, 40, and 50 could build a pension pot by saving £100 per month. The assumptions included a growth rate of 5%, inflation at 2%, and a retirement age of 68.

Key insights:

• Auto-enroll in your employer's pension scheme to take advantage of the employer contributions
• Ask your employer to match your pension contributions - this is essentially extra free money
• Invest in lower-cost pension funds rather than default funds to maximize your returns
• Consider taking on a bit more investment risk if you have a longer time horizon before retirement
• Don't rely solely on taking tax-free cash at retirement - use the full pension pot to generate income
• Check your National Insurance record to ensure there are no gaps that could impact your state pension
• Seek advice from a financial advisor to ensure you are on track for the retirement you want

Self-assessment checklist

Summary:

In the final segment of the show, Andy provides a checklist of situations where individuals may need to submit a self-assessment tax return. He emphasized that personal circumstances can change, so it's important to be aware of the various scenarios that require a tax return. Andy walked through a range of examples, including being self-employed, having rental income, claiming tax relief on expenses and receiving foreign income. Andy also highlighted changes to the high-income threshold for requiring a tax return, which has been increased to £150,000 for the 2023/24 tax year and will be removed entirely the following year.

Key insights:

• Use the HMRC tool to determine if you need to submit a self-assessment tax return based on your personal circumstances
• Claiming tax relief on employment expenses over £2,500 or having capital gains tax to pay can also trigger the need for a tax return
• The deadline for submitting online tax returns is midnight on January 31st, 2025, and late filing can result in penalties
• If you can't pay your tax bill in full by the deadline, you may be able to arrange a payment plan with HMRC

• Best mortgage rates in the UK
• Best questions to ask a mortgage broker
• Pension Calculator from Moneyhelper
• Pension Calculator from Hargreaves Lansdown
• What is auto-enrolment
• Check if you need to complete a self-assessment tax return
• Set up a payment plan with HMRC
• Tips for completing your self-assessment tax return for 2023/24

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