I do, quite frequently, think about getting health insurance. To this day I have yet to actually have something push me to take the leap and get a policy, but I feel a couple of bad experiences away from doing so.

My experiences with NHS healthcare have been varied, unfortunately. But largely this has not been for myself (thankfully), rather I have watched (and helped) family go through the system a lot.

I have had both parents in the system to a significant degree at varying times. My wife has been through the maternity system with our first son (and is currently on her way through it a second time).

I’m not going to go into the details of those experiences as they are deeply personal, but safe to say they were very mixed – particularly for my parents.

The maternity and subsequent paediatric provision has always been great, I will say. It will be interesting to see how experiencing the same process two years on differs with our second child due in December.

Where my personal sentiment on the NHS begins to chafe really comes down to the primary services we receive. I can count on one finger the number of times I’ve ever actually been granted access to my current GP, for example.

We routinely have to queue, sometimes for up to an hour, for our local pharmacies to fulfil prescriptions. This is thanks in large part to a major national pharmacy chain withdrawing from our town and putting pressure on the remaining provision.

And dental – don’t get me started. We live in a dental desert and have to drive over an hour away for an appointment. That appointment isn’t even on the NHS, those are rarer than (healthy!) hens teeth in Devon.

But does this push me into getting private medical insurance for our family? Our problem is largely a primary care deficiency.

More from Edmund Greaves

Time for health insurance?

The reality for our situation is that it feels hard to apportion some of our monthly income to a health insurance policy because, frankly, so much of my income already goes on taxes which pay for the NHS.

The Government has a fun tool you can use to tell you exactly how much of your taxes went where in a given tax year, out of interest. I am aware this is getting into the territory of crying over a sunk-cost fallacy but it hurts to look nonetheless.

In the most recent tax year, 2023/24 – just over 20% of my tax went to the NHS. This works out at just under £4,000 a year. My partner earns less than me (and ironically enough is a n NHS nurse which provides its own insights into the Byzantine Health Empire which I will forgo for today), but between us I’d calculate we’re roughly paying in around £6,000 a year just to the health system.

This is great inasmuch as we’ve actually used it quite a lot having our son etc. But it is also certainly a lot more than we’d pay for equivalent private health insurance, which comes without the queues and more free smart watches. For context – a private policy runs between £70 and £200 depending on circumstances.

So even if myself and my wife were both paying the top end (we wouldn’t because we’re under 40) we’d still be paying less than the equivalent in tax.

Controversially (and perhaps under-noticed as of yet) political parties such as Reform have floated giving people tax breaks for opting out of NHS care and using private insurance. Given the potential cost differential already mentioned, this could be an extremely compelling way to save tax for people who would have lower annual premiums (i.e. the healthy and young).

But the implications are fraught especially given that it is the taxes of the healthiest who are essentially footing the bill for those in poor health in the nationalised system.

In totality, the Government spent around £258 billion on healthcare in 2024. That’s a big number. For context, the Government spend £1,279 billion on everything it does in the tax year 2024/25.

Brits spent around £46 billion on so-called ‘out-of-pocket’ healthcare expenditure in 2024. What this means is for all the money spent on healthcare in the UK, around 15% came out of our own cash. The Government spends 81% of the money. Just 2.6% of spending is done by private health insurance schemes.

Interestingly, the out-of-pocket spending used to be higher – 20% in 1997. At that time health insurance accounted for just under 4%. What this tells me is that there is still a significant unsatisfied demand for private healthcare coverage. Why?

In this week’s podcast we were joined by Dr Katie Tryon, chief commercial officer at health insurance provider Vitality. We got Katie on the podcast as probably one of the best-placed people in the country to actually explain to us the nuts and bolts of how health insurance works.

For a more detailed guide, we’ve also written up all you need to know on health insurance.

Dr Tryon explained on the podcast that the biggest area of growth that Vitality is seeing with regard to its health cover is thanks to the deficiencies of NHS primary care (i.e. GPs) – the exact issue my family and I face routinely. Our problems are being mirrored up and down the land and this is driving people to spend money, regardless of the sunk cost of their tax.

But they’re not buying insurance instead. And this is costing us, collectively, billions every year.

My challenge here then, is how do we solve the clear issue of a lack of coverage? While I still don’t feel as if my family is at the point of taking the leap, what is clear is we’re collectively as a nation spending a lot of money on health treatments that could potentially be covered more affordably by the pooling power of the insurance market.

My worry is that it is a mindset issue. We eulogise the NHS. For many reasons this is perfectly fair given the nature of the institution and the impact it has on many of our lives.

Personally, I have seen the NHS at its best with the birth of my son. It was truly remarkable. Enough to make me clap on a Thursday evening. But I have also had a good look at it at its worst, particularly with what I went through with my mother many years ago.

Private healthcare is so often the bogeyman in arguments about how the NHS works and is funded. It is seen as the evil vulture capitalist in the room looking to ruin nationalised health from under our noses. But the mad thing is, while we argue over this, in the breach it is creating a coverage gap that is just making us poorer and less healthy.

It’s time we thought again about how to ensure everyone has their healthcare needs covered – through a combination of national and private health that doesn’t rely on judgement, just beneficial outcomes.

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Health insurance can seem daunting, but it’s a potential alternative, or complementary way, to manage your own health and access timely treatment as the NHS faces historic issues.

It is safe to say health insurance is not a widely used product in the UK. Just 2.6% of health spending is done via private medical insurance according to the Office for National Statistics.

But it is gaining some traction – especially given well-documented recent issues in the NHS. While waiting lists are falling, more than seven million are still holding on for procedures.

The UK’s healthcare system is still overwhelmingly nationalised. In practice, this means that the NHS is ‘free at the point of delivery’– but is ultimately paid for through everyone’s taxes. You can read editor Edmund Greaves’s weekly column for more on that.

That being said, a private healthcare system, although much smaller, does exist alongside the national provision.

The lines between private and public are at times blurred as some doctors and healthcare institutions look after both kinds of patient. But how that care is funded is ultimately what is relevant.

This guide explains what health insurance is, how it works, why it might be a useful or necessary alternative to the NHS, what to consider when purchasing and its potential role in your finances.

In compiling this guide, Mouthy Money spoke to Dr Katie Tryon, chief commercial officer at health insurer Vitality for an episode of the Mouthy Money podcast. You can listen to the full podcast episode with Katie to hear more about how health insurance works and what to consider.

What is health insurance?

Health insurance, commonly known as private medical insurance in the UK, is a form of insurance policy that funds private healthcare for specific medical conditions, treatments or other health-related services.

Unlike the NHS, which offers free care at the point of use, private health insurance grants access to private hospitals, consultants and treatments. These private services are typically much quicker than NHS care but there is a significant ‘out-of-pocket’ cost attached.

Private health insurance generally covers acute conditions, such as sudden illnesses or injuries requiring surgery, but often excludes chronic conditions like diabetes or long-term care. Policies differ, but many include hospital stays, specialist consultations, diagnostic tests and treatments like physiotherapy.

Dr Tryon explains: “Traditional health insurance covers private treatment for conditions like musculoskeletal issues, cancer, or cardiovascular problems, depending on policy terms. These are the big-ticket items people historically bought insurance for.”

But she notes that usage of so-called ‘primary’ services such as GPs is growing significantly in response to changes in NHS ease of access.

“The real growth has been in primary care – services like GP consultations, physiotherapy, talking therapies and even skin analytics. Since we launched our GP service in 2015, claims in this area have grown by hundreds of percent.

“Moving further upstream, prevention is a growing focus. We use tools like Apple Watches to encourage physical activity, better nutrition, smoking cessation, weight loss and regular screenings. Health insurance has evolved from just paying hospital bills to a holistic tool for managing and improving health.”

As Dr Tryon says, some plans provide additional benefits, such as holistic services, tech, dental cover or mental health support, depending on the provider and premium.

This is typically done as it is an effective way to ensure the customer remains healthy for longer and also doesn’t end up costing the insurer more in expensive health treatments down the line.

More from Edmund Greaves

How does health insurance work?

When you buy a health insurance policy, you pay a monthly or annual premium to an insurer, who agrees to cover eligible medical costs for private treatment.

The process begins with selecting a policy that matches your needs, budget and desired coverage level. Such cover ranges from basic plans for major treatments to comprehensive ones that include outpatient care and extra services.

If you need treatment, you contact the insurer, who may require pre-approval or allow a GP referral to a private specialist.

The insurer verifies if the treatment is covered, and if approved, you can book appointments at a private hospital or clinic within the insurer’s network. Typically, the insurer pays the provider directly, though some policies require you to pay upfront and claim reimbursement.

Premiums vary based on age, health, lifestyle and coverage. They may increase annually due to inflation or aging, depending on the terms and conditions of the policy.

Policies often have exclusions, like pre-existing conditions or cosmetic procedures, and may include excess fees, where you cover part of the costs. Reading the terms carefully ensures you understand the coverage.

Why might you want or need health insurance?

Health insurance can offer some advantages depending on your situation. The NHS provides excellent emergency care and chronic condition management, but waiting times for non-emergency procedures, like knee surgery, can extend to months.

Dr Tryon is emphatic that health insurance is just about non-emergency procedures and issues but is increasingly being used an alternative for primary care.

“Our data shows a clear correlation between NHS waiting lists and our claims, especially for secondary care like hospital treatments. Primary care and prevention services are areas the public sector struggles to prioritise due to financial constraints.

“Another is the ‘quantified self’ movement. People are obsessed with data – heart rate variability, steps, calories – but often don’t know what to do with it. They’re looking for guidance and we help navigate that. Early intervention is also key. It’s cheaper and better to address issues early, like physiotherapy instead of a hip replacement.

“Finally, the digital revolution, supercharged by Covid, has transformed care delivery. Virtual services and community-based care leapt forward, enabling this shift.”

Private insurance can enable quicker treatment, which is vital if you’re in pain or need to resume work. It can also provide greater choice (depending on what is available in your area) allowing you to select your consultant, hospital and appointment times, offering flexibility the NHS may not.

Private hospitals can provide private rooms and better facilities, giving more comfort during recovery. For the self-employed or those unable to take extended time off, private care can minimise income loss by speeding up recovery.

Access to specialists or advanced treatments may also be easier privately, especially for complex conditions.

What to look out for when buying?

Choosing the right health insurance policy requires careful consideration to ensure it fits your needs and budget.

It is important to remember too that health insurance only works if you have a policy in place before a condition or issue emerges.

Dr Tryon says many policies are provided through workplace programs, but you can take out a policy independently. Costs vary between £70 to £200 (but can be more) depending on your age and health-related factors.

Here are some key things to consider:

Coverage scope: Check what the policy includes. Basic plans may cover only inpatient treatments, while comprehensive ones include outpatient consultations, diagnostics, and therapies. Ensure it matches your priorities.

Exclusions and limits: Most policies exclude pre-existing conditions, cosmetic surgery, or chronic illnesses. Some limit coverage for treatments like cancer care. Review the terms to avoid unexpected gaps.

Network of providers: Insurers partner with specific hospitals and consultants. Check that nearby facilities are included and available with your chosen provider.

Excess and co-payments: Some policies require an excess, like £100 per claim, or a percentage of costs, reducing premiums but increasing your out-of-pocket expenses.

Premium costs: Compare quotes from multiple providers, but don’t compromise essential coverage for a lower price. Use comparison sites or brokers for broader options.

Claims process: Choose insurers with a clear claims process and strong customer service. Look at reviews to consider the firm’s reliability.

Consider your age, health and finances when selecting a policy. Younger, healthier individuals might opt for basic cover, while older people or those with health concerns may need broader protection.

Why health insurance matters for your finances

Health insurance isn’t typically defined as something that can save you money or offer a sensible financial safety net, but its usefulness does extend beyond healthcare.

By protecting your health and potentially your family’s too, it can act as a financial safeguard that protects you against a loss of income, savings and stability through health issues.

For self-employed individuals or those trying to navigate long NHS waiting times, it can enable faster recovery times and outcomes.

Premiums, while highly variable depending on your age and health status, are predictable, unlike ‘out-of-pocket’ medical bills that can reach into the thousands.

However, the costs, often hundreds or thousands annually, require weighing against benefits, especially if you’re young, healthy, or rarely need care. For some, saving for emergencies may be more cost-effective.

Private insurance becomes more appealing for those who can afford it. It complements the NHS, easing the pressure on you to rely on public services while enhancing your healthcare options.

If you’re thinking about getting health insurance, assess your health and finances and consider consulting a financial planner or broker to find the best policy.

Understanding health insurance’s role in your financial plan can help you to make choices that support your health and wealth.

Photo credits: Pexels

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The decision reflects a delicate balance act the central bank is facing between curbing inflation and supporting growth.

Three members dissented, voting for a rate cut citing a softening labour market and subdued consumer demand.

The MPC noted that underlying UK GDP growth remains weak, while the labour market is ‘loosening’ – i.e. more people are losing jobs.

Consumer Price Index (CPI) inflation is expected to peak at 3.7% in September before stabilising just below 3.5% by the end of 2025.

More from Edmund Greaves

Uncertain picture for household finances

The Bank’s most recent decision is taken against a persistently unclear outlook for households to plan against.

Most watchers believe it will cut its rate to 4% in August, eventually reaching 3.5% some time next year. But the MPC has taken a ‘two steps forward, one step back’ approach for some time, disappointing mortgage holders in particular.

Nicholas Hyett, investment manager at Wealth Club explains why the situation is so complicated: “The Bank of England’s goal over the last two years has been to slowly bring down inflation without crashing the economy – achieving a so-called soft landing, that’s not easy at the best of times let alone when the economic data is unreliable.

“Official data suggests the Bank has so far done a pretty good job, with the UK labour market holding up well. The problem is that data has never been more unreliable, and elsewhere there are signs of strain. Just this morning recruiter Hays said that it is experiencing significant weakness, with a 13% revenue fall in UK & Ireland as hiring for permanent positions softens.

“Inflation numbers too are subject to uncertainty and had to be restated last month after an error in the data. Conflict in the Middle East risks higher energy prices potentially pushing inflation higher – though calling the course of events there is almost certainly a mugs game, and the Bank has said that under current conditions it expects inflation to remain broadly at current levels for the rest of the year.

“The risk is that all the uncertainty leaves the Bank paralysed, with rates stuck at their current level. With uncertain data, policy setters will need a really compelling reason to hike or cut interest rates and that could result in default driven decisions.”

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Chancellor Rachel Reeves delivered her major spending review yesterday. Needless to say the reaction (and speculation beforehand) was a deeply mixed bag.

For all the talk of spending here, investment there and tough decisions there was little for normal people to take from the announcements – a veritable storm in the media teacup which frenzied itself up ahead of the day.

The reason it contained nothing of interest for us normals is that it wasn’t a ‘fiscal event’. The Chancellor – in other words – didn’t change any tax rates or give away any new baubles.

Even the experts seemed a bit baffled by the whole thing.

But it has landed at a time when the economic clouds are beginning to gather in earnest.

Numbers going the wrong way

Labour have been very quick to defend the economic picture, but it is undoubtedly gloomy.

In the past 12 months 250,000 people are no longer on employer payrolls (a proxy for unemployment figures that are broken at the moment).

Interest rates have come down a bit – but thanks to inflation ticking back up close to 4% it is questionable how much more they can shift lower sustainably.

GDP has taken a big hit – figures out today show a 0.3% fall. Although these are largely statistical noise there is a case to be made that National Insurance hikes, minimum wage increases and other effects in April are putting a lot of pressure on the economy.

And this is what we’ve got at the moment, the perfect storm in a teacup of our times. We sit and watch a load of noise on what is going on in the economy, while the rest of us just try and get by, our wallets feeling tighter by the day.

Because I don’t know about you, but things feel tight for me at the moment and I’m meant to be fucking financial whizz. Times are hard and they aren’t getting better. We’ve cut tons of our discretionary spending and it still feels like not enough.

If this is being replicated up and down the land then the country is in real trouble.

The unemployment is what worries me the most (and I am sure worries Whitehall the most). History tells us when large numbers of people find themselves out of work, angry and disenfranchised – that is the moment when the nation is in greatest peril.

I pray for better days to come.

Photo credits: Flickr

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If I had to consider the biggest question facing my pension, what would it be?

Is it invested right? Am I contributing enough? Should I consolidate my pots?

These are all reasonable questions.

But no, the biggest question I have for my pension is ultimately – will it be enough? And how do I even work out what enough is?

Fortunately, the Pensions and Lifetime Savings Association (PLSA) has answers. So let’s go on a pension savings journey.

Age is just a number

I am 36 years old. I work a desk job, so assuming my brain (and fingers) hold up I could have a career that spans another 30 years easily.

Now, I started work in 2012, but I only opened my first pension in 2016. In the intervening period, I’ve accrued just over £34,000 into my overall pot.

Finding this number actually surprised me, I had thought it would be lower (especially considering this year’s market shenanigans).

So back to my question – is that enough? Turns out I might need that pension to be worth just under £1 million to retire on. Uh oh.

Retirement living standards

The PLSA compiles generalised figures for what it constitutes as either minimum, moderate or comfortable retirement income standards.

It released the latest iteration this week.

For the purposes of this thought experiment, let’s go for the middle ground option here. For what the PLSA calls a moderate retirement in 2025 I would need to be able to generate around £32,000 in income each year. This excludes housing costs and assumes you own your home without a mortgage (I do, fortunately for me).

If you include the full state pension at just shy of £12,000 a year then your pension would have to generate around £20,000 a year in income.

To do this you would need a pot of around £510,000 (based on drawing down 3.5%) a year – in today’s money.

This is well and good, but these are figures for someone retiring TODAY.

So what about me, in 30 years?

To save you the complicated further sums, I’ve worked out I’ll need a pension of just over £925,000 just to achieve a moderate income of £58,000 (assuming 30 years of average 2% inflation) in 2065.

More from Edmund Greaves

Confounding factors

There are some confounding factors here to be aware of:

• Being married reduces the per-person income requirements. I am fortunately married and my wife is younger than me by three years so hopefully that persists as it would make the target pot size smaller.
• State pension will likely not kick in for me until I turn 70 which means I have to front load some of my income depending on when I retire.
• I’ve assumed the state pension will still even exist (lol).
• I haven’t accounted for things like tax-free lump sum.
• Nor have I accounted for future tax changes.
• I’ve made a bunch of general assumptions about inflation that might prove optimistic (too low) in time.
• I haven’t accounted for my other assets which might generate a future income or windfall, such as my home or my Lifetime ISA.

Before things get boring the point here is that pensions are very complicated.

This is what I chatted to Clare Moffat about on this week’s podcast. I asked Clare to share the most common pension questions she gets in her work as a tax and pensions expert at mutual insurer Royal London.

In short, people are grappling with even the most basic aspects of their pension – before we get into the mad stuff like Money Purchase Annual Allowance (MPAA) and all that jazz.

I’ve never finished a conversation feeling more like I needed some actual financial advice to make it happen.

But I still haven’t answered my original question – is it enough?

To hit that fabled £925,000 pot – I’d need my current contributions and pot to return just under 9% per year. That’s pretty ambitious. Or is it?

I’m mostly invested in global index trackers – including Fidelity Index World. This fund has returned 8.81% over five years.

Including investing charges and pension pot charges I’m likely to fall a bit short. But boy, it is closer than I thought it might be.

Photo credits: Pexels

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Income protection insurance can provide a potentially vital financial safety net for families, yet it remains widely misunderstood or overlooked by many.

With rising living costs and economic uncertainty, safeguarding your income against unforeseen circumstances is more important than ever.

Let’s look at what income protection insurance is, why you might need it, when you might not, plus the key considerations when shopping for a policy.

Income protection explained

Income protection insurance is a policy designed to provide a regular income if you’re unable to work due to illness, injury, or disability.

Unlike other forms of ‘protection’ insurance, such as life insurance or critical illness cover, income protection focuses on replacing a portion of your earnings over an extended period, helping you maintain your lifestyle and meet financial commitments.

The way it works is straightforward. You pay a monthly premium to an insurer, and in return, the policy pays out a tax-free monthly sum – typically 50-70% of your pre-tax income – if you’re unable to work for a specified period.

Policies often have a waiting (or deferral) period, which can range from a few weeks to several months, during which you must be unable to work before payments begin. This waiting period can be tailored to your circumstances, with shorter periods generally leading to higher premiums.

Payments continue until you’re able to return to work, the policy term ends, or you reach retirement age, depending on the policy’s terms.

Some policies also offer additional benefits, such as rehabilitation support to help you return to work or cover for specific conditions like back injuries or mental health issues.

Income protection is particularly valuable for those whose financial stability depends on their ability to earn, offering peace of mind that bills, mortgages and daily expenses can still be covered during difficult times.

More from Edmund Greaves

Why you might need income protection

The primary reason to consider income protection is the risk of serious illness or injury that prevents you from earning an income.

In the UK, millions of people face long-term health challenges that disrupt their ability to work. Over 2.8 million people were economically inactive due to long-term sickness in 2024, according to the Office for National Statistics (ONS), a figure that highlights the vulnerability of relying solely on personal savings or statutory benefits.

Serious illnesses, such as cancer, heart disease, or mental health conditions, can strike unexpectedly, often requiring extended recovery periods.

Similarly, accidents – whether a car crash or a workplace injury – can lead to temporary or permanent disability, cutting off your income stream.

Statutory Sick Pay (SSP) in the UK provides only £118.75 per week (as of 2025) for up to 28 weeks, which is unlikely to cover most people’s living expenses, especially if you have a mortgage, rent, or dependents.

 Savings can quickly dwindle and benefits such as Universal Credit may not bridge the gap adequately. Income protection can provide a more substantial, reliable income, allowing you to focus on recovery without the added stress of financial hardship.

Self-employed individuals are particularly at risk, as they lack access to employer-provided sick pay. Freelancers, contractors, and small business owners often face immediate financial strain if they’re unable to work.

Even salaried employees may find their employer’s sick pay scheme, typically a few months at full or half pay, insufficient for prolonged absences.

Beyond health-related risks, income protection can also be a lifeline for those with significant financial commitments, such as young families or individuals with large mortgages. Losing your income could jeopardise family stability, making income protection an essential consideration for parents.

Reasons why you wouldn’t need it

While income protection is valuable for many, it’s not necessary for everyone. Certain circumstances may reduce or eliminate the need for a personal policy.

If you’re employed and benefit from a robust workplace protection scheme, you may already have adequate cover. Some employers offer generous sick pay packages, covering full or partial salary for extended periods, or provide group income protection schemes as part of their benefits package.

These policies, often cheaper due to collective bargaining, may make a personal policy redundant. However, it’s crucial to review the terms. Some schemes only cover specific conditions or have shorter payout periods.

Individuals with substantial savings or alternative income sources may also forgo income protection. For example, if you have enough in savings to cover living expenses for several years, or if you have passive income from investments, rental properties, or a pension, you may not need the additional security of a policy.

Similarly, those with a partner or family member who can fully support household finances during a period of illness might feel less urgency to purchase cover.

People nearing retirement or with no dependents may also find income protection less relevant. If you’re close to receiving a pension or have paid off major debts like a mortgage, the financial impact of losing your income may be minimal. Additionally, some policies don’t cover individuals over a certain age, typically 65, which aligns with retirement for many.

Finally, if you work in a low-risk profession and have excellent health, you might perceive the risk of needing income protection as low. However, this assumption itself carries risks, as unexpected illnesses or accidents can affect anyone, regardless of lifestyle or occupation.

Things to look out for when buying a policy

Choosing the right income protection policy requires careful consideration to ensure it meets your needs and offers value for money.

Here are key factors to keep in mind:

Shop around: Premiums and policy terms vary widely between insurers. Use comparison websites or work with a broker to explore options from multiple providers. Look at the percentage of income covered, the deferral period, and any additional benefits, such as rehabilitation support or premium waivers during unemployment.

Consider speaking to an adviser: An independent financial adviser can help you navigate the complexities of income protection options, ensuring the policy aligns with your financial situation and goals.

Understand exclusions and eligibility: Insurers may exclude pre-existing medical conditions, mental health issues, or high-risk occupations (e.g., construction or professional sports). Disclose your full medical history and job details to avoid having claims denied later. Some conditions, like chronic illnesses, may preclude you from getting cover or increase premiums.

Check policy flexibility: Ensure the policy allows adjustments, such as changing the deferral period or coverage amount, as your circumstances evolve. Also, check whether premiums are guaranteed (fixed) or reviewable (subject to change), as this can affect the long-term affordability of the policy.

Cost vs. coverage: While cheaper policies may seem appealing, they often come with shorter payout periods or stricter terms. Balance affordability with comprehensive cover and explore policies with back-to-work support to reduce long-term costs.

In conclusion, income protection insurance is a crucial consideration for many in the UK, particularly those with dependents, significant debts, or no alternative financial safety net.

By understanding how it works, assessing your need, and carefully selecting a policy, you can protect your financial future against the unpredictability of illness or injury.

Always consult with professionals if you’re in any doubt and compare options to find a policy that offers both security and peace of mind.

Photo credits: Pexels

The post Should I get income protection? appeared first on Mouthy Money.

The Pensions and Lifetime Savings Association (PLSA) has released its latest Retirement Living Standards update, revealing a notable decrease in the cost of a minimum retirement lifestyle, while moderate and comfortable standards have seen increases.

The changes are driven by lower energy prices and shifting public expectations on retirement income levels.

For a two-person household, the cost of a minimum retirement lifestyle has dropped to £21,600 annually, down £800 from previous levels, while a one-person household now requiring £13,400, a £1,000 reduction.

The decline is largely attributed to a significant fall in energy costs, with weekly domestic fuel budgets for a two-person household at the minimum level decreasing by £12.44 and by £8.82 for one-person households.

These savings reflect broader economic shifts, including lower energy prices, which have eased financial pressures for retirees at this level.

Zoe Alexander, director of policy and advocacy at the PLSA, said: “For many, retirement is about maintaining the life they already have not living more extravagantly or cutting back to the bare essentials. The Standards are designed to help people picture that future and plan in a way that works for them.

“Everyone’s situation is different, and contributions should be manageable. But if your circumstances improve, even small increases can make a big difference to your future.

“This year’s findings show that costs can go down as well as up. But planning matters more than ever. Whether you’re on your own or sharing your future with someone else, these Standards are here to help savers picture and plan their retirement – with real figures, real choices and real flexibility.”

The Retirement Living Standards, calculated by Loughborough University’s Centre for Research in Social Policy, are based on in-depth discussions with UK residents to define three retirement lifestyles: Minimum, Moderate and Comfortable.

While the minimum standard saw reductions, the moderate and comfortable standards have risen slightly due to inflation across various expenditure categories, though lower energy costs – down £16.74 and £15.38 per week for two- and one-person households, respectively – helped offset these increases.

Professor Matt Padley, co-director of the Centre for Research in Social Policy at Loughborough University, said: “Our research on what the public agree is needed in retirement at these three different levels continues to track changes in expectations, shaped by the broader economic, social and political context.

“The consequences of the cost-of-living challenges over the past few years are still being felt, and we’ve seen some subtle changes in public consensus about minimum living standards in retirement, resulting in a small fall in the expenditure needed to reach this standard. 

“In these uncertain times, planning in concrete ways for the future is ever more important, and the RLS help people to think in more concrete ways about what they want their retirement to look like, and how much they will need to live at this level.”

Public discussions also highlighted evolving expectations for the Minimum standard, with small adjustments in spending on clothing, hairdressing, technology, taxi use, and charitable giving. However, rail travel budgets increased, rising from £100 to £180 per person annually, reflecting higher fares and greater reliance on trains for longer journeys.

More from Edmund Greaves

This year’s update introduces new terminology, replacing “single” and “couple” with “one-person” and “two-person” households to better reflect modern retirement living arrangements.

A PLSA survey found that 75% of people live with family members, 22% live alone, and 3% share with non-family members. Looking ahead, 77% of non-retired individuals expect to live with someone in retirement, with only 12% preferring to live alone, signaling openness to shared living to reduce costs.

The RLS serve as a guide, not a rigid target, encouraging retirees to tailor plans to their lifestyles.

Alexander urges savers to consider pension contributions beyond the 8% automatic enrolment default, suggesting 12% or more for a better chance at their desired retirement.

Photo credits: Pexels

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The UK Government has revealed plans to double the number of pension megafunds managing £25bn or more by 2030 through the upcoming Pension Schemes Bill.

The reforms will consolidate multi-employer Defined Contribution (DC) pension schemes and Local Government Pension Scheme (LGPS) pools to boost investment in UK infrastructure, housing and businesses, with an estimated £50bn to be channelled into the economy.

The move is aimed at addressing a decline in domestic pension fund investments.

Currently, only about 20% of DC pension assets are invested in the UK, down from over 50% in 2012. The reforms mandate that DC schemes and LGPS pools operate at megafund scale, managing at least £25bn by 2030.

Schemes with over £10bn unable to meet this target must outline plans to reach £25bn by 2035. The Government cites Canada and Australia, where larger funds invest in infrastructure and private businesses, potentially yielding higher returns.

Consolidation is projected to save £1bn in scheme fees annually by 2030 through economies of scale and improved governance. The Government estimates an average earner’s DC pension pot could increase by £6,000 at retirement, with further gains expected from the Pension Schemes Bill, though these depend on market performance and implementation.

The bill will also permit DC schemes to transfer savers’ assets into better-performing funds and grant powers to enforce asset allocation targets.

The pensions minister Torsten Bell, comments: “Our economic strategy is about delivering real change, not tinkering around the edges.

“When it comes to pensions, size matters, so our plans will double the number of £25 billion plus megafunds. These reforms will mean bigger, better pension schemes, delivering a better retirement for millions and high investment in Britain.”

Deputy Prime Minister Angela Rayner also noted in the announcement that consolidating the £392bn LGPS into six pools could support local priorities for the 6.7 million public servants whose savings are managed through such schemes. Local investment targets are expected to secure £27.5bn for regional projects.

The Pension Schemes Bill will also address small pension pots and require schemes to demonstrate value.

What this means for UK pension holders

For UK workers with DC pensions or LGPS memberships, the reforms may alter how their savings are managed. Savers could see their pension pots moved into larger megafunds, potentially benefiting from lower costs and diversified investments in infrastructure or businesses.

However, the projected £6,000 boost is not guaranteed, hinging on market conditions and fund performance.

Public sector workers may see their pensions increasingly fund local projects, raising questions about investment risks.

The Pension Schemes Bill will introduce measures to ensure value for money, but savers should monitor how their funds are managed and the implications for their retirement.

More from Edmund Greaves

Concerns over compelling domestic investment

The Government plans to legislate asset allocation targets, including a 5% commitment to UK assets. This has sparked concerns that compelling certain investments could lead to inferior outcomes. 

Critics argue that forcing pension funds to prioritise domestic projects could compromise returns, as investment decisions may be driven by policy rather than financial merit.

Private markets, such as infrastructure or start-ups, often carry higher risks and costs, potentially affecting savers’ pensions if projects underperform. There’s also worry about reduced diversification, as over-concentration in UK assets could expose funds to domestic economic volatility.

For LGPS members, local investment targets might lead to scrutiny over whether projects align with community needs or favour political priorities. While the Government insists savers’ interests will be protected, some fear the reserve powers to enforce targets could limit fund managers’ independence, raising questions about long-term pension security.

While framed as a step toward economic growth, the reforms’ impact on savers and the economy remains uncertain.

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The Government is giving itself power to force pension schemes to invest in the UK. This would set us back onto the path to financial repression.

Financial repression is something we’ve largely forgotten about as a concept in the UK.

But for around 30 years after World War II it was one of the most important – and pernicious – policies for economies looking to bury their bad debts.

With the Government set to give itself the power to compel financial institutions in the UK to invest pension scheme members’ money into British assets – we are on the cusp of returning to that era.

Before I get into the ins and outs of financial repression – I must say (and did make clear in this week’s podcast) that this is just the beginning of a policy journey that could take any number of directions. But the scene is now set for what is to come.

What is financial repression?

Financial repression is a mechanism used by Governments which face painfully high national debt levels.

Financial repression comprises policies that result in savers earning returns below the rate of inflation to allow banks to provide cheap loans to companies and governments, reducing the burden of repayments.

It can be particularly effective at liquidating government debt denominated in domestic currency.

There are a few ways the Government can do this:

1. Explicit or indirect capping of interest rates, such as on government debt and deposit rates.
2. Government ownership or control of domestic banks and financial institutions with barriers that limit other institutions from entering the market.
3. High reserve requirements.
4. Government restrictions on the transfer of assets abroad through the imposition of capital controls.
5. Creation or maintenance of a captive domestic market for government debt, achieved by requiring financial institutions to hold government debt via capital requirements, or by prohibiting or disincentivising alternatives.

Point number five sounds an awful lot like what the Government has announced today with regards to compelling UK pension scheme to invest domestically.

More from Edmund Greaves

Why is this an option for the Government?

In the situation we are in today – with a debt-to-GDP ratio of over 100% – the Government faces tough choices about how it continues to raise, and spend, money.

It is politically toxic to cut spending (austerity) but it is also practically impossible to tax more too. Both would seriously hamper economic growth – something desperately needed to improve people’s standards of living and ensure the country doesn’t collapse into chaos.

This is where governments reach for this little-understood policy tool – financial repression.

This tool works in a number of ways, but the main purpose is to force savers to accept lower returns, generally leaving their pots worse off against inflation.

Over time as the economy grows, this makes the relative size of the national debt look smaller as a percentage of GDP. It makes the Government’s debt repayments more affordable and means it doesn’t have to make the aforementioned unpalatable political choices.

We have historic precedent for this – it is exactly what a series of governments between around 1945 and the 1970s opted to do. In the wake of World War II, national debt sat at more than 200% of GDP – even worse than the current predicament.

By the 70s this had fallen to less than 30% – all thanks to financial repression.

It was decided – over many years – that it was a policy choice worth making despite its effects on savers, in order to avoid drastic spending cuts or tax rises. It was the ‘least worst’ option.

Who is worst affected?

The winners and losers of financial repression are fairly easy to define.

Winners include the Government, who gets to devalue its debts. Working people who aren’t big asset owners also potentially win as services aren’t cut and taxes aren’t raised. That is subject however to workers ensuring their pay rises with inflation consistently.

The big losers are savers – or anyone with assets that have to stay ahead of inflation.

The Bank of England is currently cutting its base rate, all while inflation is ticking up close to 4%. This in effect creates the perfect conditions for financial repression to take place.

The point here is that the Government is unable to tax wealthier pensioners (see why they’ve reversed on the winter fuel allowance cuts) without facing severe consequences at the ballot box.

Instead, financial repression acts like a stealth tax on asset holders/savers. The Government can simply point to the rising cost of living as to why retirees suddenly find their pension and savings incomes aren’t keeping up with costs.

Of course, there is a significant caveat in this thanks to the state pension and its associated triple lock.

In an environment that punishes savers (read: pensioners) the state pension triple lock provides an income guarantee at the bottom of the wealth pyramid. This means that financial repression is to an extent ‘progressive’ in that it is wealth that is taxed away, so the more of it you have, the more you stand to lose.

Again, we’re not in the middle of this yet, but we are now on the path to it with these pension law changes.

And the reality is that this may be our only answer to the horrendous fiscal situation the country finds itself in. at the end of the day someone is going to have to feel the pain in order to put the national finances back on an even keel.

It might be that financial repression is the only option to do that now.

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At a time when capital values may be bouncing around in response to the latest missive from the White House, receiving an income from your investments can be a reassuring source of stability.

In today’s market environment, investors have an abundance of choice. It is still possible to pick up an annual income of 5-6% from stock market or fixed income investments out without thinking too hard or doing too much.

Until recently, investors wanting an income from their savings could have secured a reasonable, if unexciting, return from cash deposits. Rates of 5% were not uncommon, which – with inflation at around 2.5% – saw savers’ money grow in real terms.

However, these rates are disappearing fast as Bank of England base rates fall. Online comparison site Moneyfacts points out that rates have now fallen to their lowest rate in two years.

Against this backdrop, the additional income an investor can pick up through the stock market or through a fixed income investment looks appealing. James Calder, chief investment officer at City Asset Management, says there is an “embarrassment of riches” when it comes to getting income from investments and investors don’t have to take a lot of risk to pick up a high yield.

He says: “We don’t have to struggle for income anymore. During the era of 0% interest rates, we generally used equity income funds, which would give us a 3-4% yield when bonds were paying next-to-nothing. We don’t have to do that now.

“Now there are short-dated UK Government bonds that pay 4% or higher, which have tax advantages for retail investors. And investors don’t have to work that much harder to get 5-6%.”

Gilts are a decent starting point for a low-risk investor. Gilts are bonds issued by the UK government and are available on most of the major investment platforms. Investors can lock in an income of 4.5-5% for the lifetime of the bond and then get their money back at the end. While the price of the gilt may bounce around, providing you hold it to term – and the UK government doesn’t default (which hasn’t happened in the 330+ years gilts have existed) – you will get your money back plus the interest.

There are also tax advantages. Dan Coatsworth. investment analyst at AJ Bell says: “Any gains made on gilts are exempt from capital gains tax.

“With some gilts trading below ‘par’ (£100) and offering a low coupon, it means that a good proportion of the return, if held to maturity, comes from capital gains rather than from income. As a result, when the yields on offer are held up next to the interest rates available on deposit, gilts compare very favourably.”

Corporate bonds are the next level up. Investors are taking more risk than they would with a government bond because companies can and do go bust from time to time. However, for large blue-chip organisations, it is relatively rare and investment grade bond funds are usually a steady choice for investors.

In this part of the market, Darius McDermott, managing director at FundCalibre, suggests the Artemis Corporate Bond fund, managed by experienced manager Stephen Snowden. It has a yield of 5.4% and at least 80% invested in investment grade corporate bonds.  

High yield bonds – which are issued by smaller, riskier or more indebted companies – will give a higher income but come with more risk. Default rates rise from near zero for investment grade bonds to 3-4% for high yield.

Calder feels he doesn’t need to take the risk, “we’re getting just as good a return for moderately risky assets”, but for those who are interested in the 7-8% yields on offer, McDermott suggests managers such as Mike Scott on the Man High Yield Opportunities who have a strong track record on credit selection.

More from Cherry Reynard

Inflation issues

The problem with all cash and fixed income investments is that they won’t protect against inflation. Until recently, that hadn’t been a significant problem, but inflationary pressures keep rearing their heads. The latest UK inflation reading was 3.5% for April, as a raft of household bill increases came into effect.

Stock market investment has a far better track record of keeping pace with inflation. This is because companies can often raise their prices in line with inflation and therefore mitigate its impact. The first port of call for many investors is the AIC’s Dividend Heroes list. These are a range of investment trusts that have a well-established track record of growing their dividends year after year.

City of London, Bankers and Alliance Witan have all raised their dividends for 58 consecutive years. F&C Investment trust, Brunner, and Merchants are also strong contenders. The longevity of their income record is helped by the investment trust structure, which allows them to reserve dividends in strong years to pay out in weaker years. Many of these trusts have built up good reserves to see them through difficult patches.

Elsewhere in the equity income sectors, investors could do worse than look at the UK, which has the highest yields of any major market. It has been unloved for some years and looks cheap relative to other markets. A multi-cap income fund can also capture the bargains on offer in the unfashionable small and mid-cap sectors, while retaining the ballast of larger cap UK companies. The Jupiter UK Multi-Cap Income or Marlborough Multi Cap Income funds could be good options.

For a global option, Gavin Haynes, investment consultant at Fairview Investing, suggests the Artemis Global income fund: “While growth focused tech stocks have been much loved, income producing shares remain cheap in comparison. Dividend income could prove to be more important than it has been over the past decade. The Artemis fund follows a value approach looking for unloved cheap dividend producing stocks.”

A final thought would be the yields available from areas such as commercial property or infrastructure. Both asset classes have struggled in an environment of rising interest rates, but should now have a tailwind.

While there is lots of choice on offer, McDermott likes the TR Property Investment trust, which invests in the shares of property companies of all sizes and has a yield of 4.9%. Infrastructure funds tend to have reliable, inflation-adjusted cash flows and are invested in solid assets such as toll roads, utilities, hospitals or schools. First Sentier Global Listed Infrastructure is a solid choice.

After many years when stock markets have been all about AI, the US and technology companies, dividends may be about to become a more important part of overall returns for investors. Either way, they can be a reassuring and reliable source of return during uncertain times.

Disclaimer

This article is produced for general informational purposes only. It should not be construed as investment, legal, tax or other forms of financial advice.

If in any doubt about the themes expressed, consider consulting with a regulated financial professional for your own personal situation.

Past performance is no guarantee of future results. Investments can go down as well as up and you may get back less than you started with.

Investments are speculative and can be affected by volatility. Never invest more than you can afford to lose.

For more information visit www.fca.org.uk/investsmart

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