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.

Photo credits: Pexels

The post UK Government announces pension reforms to combine pension funds and increase domestic investment appeared first on Mouthy Money.

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.

Photo credits: Pexels

The post We’re on the cusp of returning to an era of financial repression appeared first on Mouthy Money.

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

Photo credits: Pexels

The post How to invest for an income in 2025 appeared first on Mouthy Money.

UK pension default funds are pre-selected investment options offered by workplace pension schemes for employees who do not actively choose their own investments.

These funds are designed to suit the average pension saver, balancing risk and potential returns.

Most UK workers are automatically enrolled into a workplace pension under auto-enrolment rules and if they do not make an investment choice, their contributions go into the scheme’s default fund.

Understanding these funds is key to planning for retirement as how they are invested can have long-term implications for pension outcomes.

Default funds are typically managed by professional fund managers and aim to provide steady growth over the long term.

They are often low-cost and diversified, spreading investments across assets like stocks, bonds, and sometimes property to reduce risk.

The goal is to grow your pension pot while protecting it from major market swings, especially as you near retirement age.

How do UK pension default funds work?

When you’re auto enrolled into a workplace pension, your employer and you contribute a percentage of your salary to the scheme typically 3% and 5% of your salary respectively.

If you don’t select specific investments, these contributions are invested in the default fund. Most UK pension default funds use a strategy called ‘lifestyling’ or target-date investing. This approach adjusts the fund’s asset allocation based on your age or expected retirement date.

In your younger years, the fund might invest heavily in equities (stocks) for higher growth potential, as you have time to ride out market fluctuations.

As you approach retirement, the fund gradually shifts towards safer assets like bonds or cash to preserve your savings.

This automatic adjustment reduces the need for you to actively manage your pension investments, making it a hands-off option for many UK savers.

Default funds are regulated to ensure they meet standards for risk, cost, and transparency.

Charges are typically low, often capped at 0.75% per year under Government rules, which can help improve long-term costs.

However, returns are not guaranteed and the fund’s performance depends on market conditions.

Alternative options for pension investing

While UK pension default funds are convenient, they may not suit everyone’s financial goals or risk tolerance.

There are some alternative options for UK pension savers looking to take more control over their investments:

1. Self-select funds

Many workplace pensions allow you to choose from a range of funds offered by the provider. These might include equity funds, bond funds, ethical funds, or sector-specific funds.

This option lets you tailor your investments to your risk appetite or values, such as investing in sustainable companies.

However, you’ll need to research and monitor your choices, as higher-risk funds can lead to greater losses.

2. Self-invested personal pension (SIPP)

A SIPP gives you greater flexibility to invest in a wide range of assets, including individual stocks, exchange-traded funds (ETFs), investment trusts, and even commercial property.

SIPPs are popular among experienced investors but often come with higher fees and require active management. They’re best for those confident in making investment decisions or working with a financial adviser.

It is important however not to forgo the workplace pension entirely however, as you’ll be turning down valuable employer contributions if you opt solely for a SIPP.

3. Financial advice or robo-advisers

If you’re unsure about investment choices, a financial adviser can help create a personalised pension strategy. However advisers tend to require minimum capital levels before being able to help with planning.

Alternatively, robo-advisers offer low-cost, automated investment management based on your goals and risk tolerance.

Both options can help you move beyond the default fund while keeping your pension aligned with your retirement plans.

But be aware of the costs associated with having a third party manage investments for you. It is also important too to ensure the adviser is regulated and has a strong track record of good outcomes for their clients.

Why consider alternatives to default funds?

UK pension default funds are a solid starting point, but they’re designed for the average saver, not individual needs.

If you have a higher risk tolerance, want faster growth, or care about ethical investing, exploring alternatives could better align your pension with your goals.

Reviewing your pension regularly ensures it reflects your financial situation and retirement aspirations.

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 

Photo credits: Pexels

The post What are pension default funds? appeared first on Mouthy Money.

For private investors, understanding how the bond market works and why bonds matter is essential to promoting better long-term outcomes for our wealth journey.

Bonds are a cornerstone of investing and can unlock opportunities to diversify portfolios, manage risk and generate steady income. But there are important aspects of bonds to be aware of too.

This article explains what bonds are, how the bond market works and why it is relevant to private investors. 

What are bonds

Bonds are financial instruments issued by borrowers, typically governments or businesses to raise funds. 

When you buy a bond, you are lending your money to the borrower in exchange for regular percentage-based interest payments, known in the industry as a ‘coupon’ or a ‘yield’. The cash invested in the bond is returned when it reaches ‘maturity’. 

Bonds are often referred to as ‘fixed-income securities’ because they generate a predictable stream of interest payments over time.

There are several types of bonds, each with unique characteristics. Government bonds, such as U.S. Treasury bonds or UK ‘gilts’, are considered lower risk because they are backed by a government. 

Corporate bonds, issued by companies, carry higher risk but often offer higher yields too. There are categories within this too, such as ‘investment-grade’ and ‘high yield’. These tend to reflect the relative risk of the corporate bond in question. 

Understanding these distinctions can help investors choose bonds that align with their risk tolerance and financial goals.

Bonds have key features that influence their value. The yield determines the interest paid, while the maturity date indicates when the initial investment is repaid. Bonds also have a ‘face value’, which is the amount returned at maturity. 

Market conditions such as interest rates and economic trends affect bond prices, making it essential to understand how these factors interplay.

How the bond market works

The bond market, sometimes called the debt market or fixed-income market, is where bonds are issued, bought, and sold. It is one of the largest financial markets globally, with trillions of dollars in bonds traded daily. 

Unlike the stock market, which operates through centralised exchanges such as the London Stock Exchange, the bond market is primarily an ‘over the counter’ market. This means transactions occur directly between buyers and sellers, often aided by brokers or dealers.

The bond market has two main segments: the primary market and the secondary market. 

In the primary market, new bonds are issued and sold to investors. For example, a corporation may issue bonds to finance a new project and investors purchase them directly from the issuer. 

Once issued, bonds trade in the secondary market, where investors buy and sell existing bonds. 

The secondary market provides liquidity, allowing investors to adjust their portfolios as needed. Bond prices in the secondary market fluctuate based on supply and demand, interest rates, and the issuer’s creditworthiness. 

A key concept is the inverse relationship between bond prices and interest rates. When interest rates rise, existing bonds with lower coupon rates become less attractive, causing their prices to fall. Conversely, when interest rates decline, bond prices tend to rise. This dynamic affects the value of bond investments and influences investor decisions.

LISTEN: Mouthy Money podcast on why the Bank of England is cutting the base rate

The bond market is influenced by various participants, including governments, institutional (i.e. major financial businesses) and individual investors. 

Central banks, such as the Bank of England, play a significant role by setting monetary policies that impact interest rates. 

Credit rating agencies such as Moody’s and S&P Global Ratings, assess the creditworthiness of bond issuers, affecting investor confidence and bond pricing. Understanding these players helps investors navigate the complexities of the bond market.

Why the bond market matters to private investors

For private investors, the bond market offers several benefits that make it a valuable component of a diversified portfolio. 

Here are four reasons why bonds and the bond market are relevant to individual investors.

1. Income generation

Bonds provide a reliable source of income through regular yield payments. For retirees or investors seeking steady cash flow, bonds can supplement other income sources, such as dividends or state pension. 

By selecting bonds with varying maturities and yields, investors can create a predictable income stream tailored to their needs.

2. Risk diversification

Bonds typically have a low correlation with stocks, meaning their prices often move independently of equity markets. 

During periods of stock market volatility, bonds can act as a stabilizing force in a portfolio. Government bonds, in particular, are considered safe-haven assets, offering protection during economic downturns. By allocating a portion of their portfolio to bonds, investors can reduce overall risk.

It must be caveated however that this is not always the case. In the recent selloff in markets over US President Donald Trump’s tariff war – both stocks and government bonds witnessed major falls in value. 

3. Capital preservation

For investors nearing or in retirement, preserving capital is a priority. High-quality bonds, such as US treasuries, UK gilts or investment-grade corporate bonds, offer a relatively safe way to protect principal while earning a return. 

Although bonds carry risks, such as interest rate risk or credit risk, selecting bonds with strong credit ratings and appropriate maturities can minimise these concerns.

4. Flexibility and accessibility

The bond market provides a range of options to suit different investment goals. Investors can choose short-term or long-term bonds, high-yield or low-risk bonds and domestic or international bonds. 

Additionally, individual investors can access the bond market through bond mutual funds, exchange-traded funds (ETFs), or direct bond purchases. These vehicles make it easier to invest in bonds without requiring extensive expertise or large capital.

Key considerations for private investors

While the bond market offers opportunities, it also comes with challenges that private investors should understand. 

Interest rate risk is a primary concern, as rising rates can reduce the value of existing bonds. Inflation risk is another factor, as rising prices can erode the purchasing power of fixed coupon payments. 

Credit risk – the possibility of an issuer defaulting – is particularly relevant for corporate and lower-rated bonds.

To mitigate these risks, investors should conduct thorough research and consider their financial objectives. Diversifying across bond types, maturities, and issuers can reduce exposure to any single risk. Working with a financial planner or using diversified bond funds can simplify the process for those new to bond investing.

Another consideration is the impact of taxes. Interest from most bonds is taxable. Investors should evaluate their tax situation and consult a tax professional to optimise their bond investments, using tax wrappers such as pensions or ISAs which can lower the tax liability on your portfolio. 

The bond market is a cornerstone of investing, offering private investors opportunities to generate income, diversify portfolios and preserve capital. 

By understanding what bonds are, how the bond market operates, and why it matters, investors can make informed decisions to improve their financial plans. 

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

Photo by fauxels: https://www.pexels.com/photo/people-discuss-about-graphs-and-rates-3184292/

The post How the bond market works appeared first on Mouthy Money.

The Treasury Select committee met yesterday to hear more evidence on the future of the Lifetime ISA.

The committee first met in February and had a range of speakers to discuss the viability of the product, which pays an annual bonus to savers of up to £1,000.

Much is up for discussion, including the extreme solution of abolishing the product altogether.

So what is the Government thinking on this? The committee heard evidence from MP Emma Reynolds, the economic secretary to the Treasury. 

Unfortunately, her comments didn’t provide much information on whether the LISA will be improved upon. 

Reynolds told the committee: “Any changes that could be made to improve that situation would cost money. That money would have to be found from somewhere else.”

What is the Lifetime ISA?

The Lifetime ISA or LISA is designed for people who wish to save a house deposit for their first home purchase. Alternatively, savers can use the LISA as an alternative (or addition) to a pension. 

If the saver doesn’t use it for a house deposit, then the money can’t be withdrawn until they turn 60. 

Savings of up to £4,000 a year get a 25% bonus – up to £1,000. But any withdrawal made that doesn’t include the above reasons incurs a 25% penalty. The problem here is the penalty is made on the whole amount, not just the bonus. This means in effect someone who takes money out gets less back than they put in. 

But although this aspect has drawn many critics, who have called for the penalty to be lowered to 20% – which would negate the losses – Reynolds, told the committee this was a feature not a flaw of the product. 

She told the committee: “Having rules around a penalty if you withdraw are in line with unauthorised withdrawals of a pension. The penalty of withdrawing your pension earlier is much heavier than the 25% in this case.  

“We can’t have a risk-free option of investing for the long-term, but if you take your money out, there is not a charge. We would not have that situation.”

The LISA also presents first-time buyers in areas such as London and the South East with an issue because the cap on property purchase prices is £450,000 – which prevents some savers from using the product in areas where prices are very high. 

Future of the LISA

Brian Byrnes, head of personal finance at finance app Moneybox, spoke exclusively to Mouthy Money yesterday ahead of the next committee. You can hear him explain all about the LISA – its past and its future – in the latest Mouthy Money podcast episode. 

Having given evidence at the committee hearing in February, Byrnes told the podcast that Moneybox anticipated some action from the Government on the LISA in the next Autumn Budget, later this year. 

On the back of the committee hearing, Byrnes added: “Yesterday’s Treasury Select Committee session highlighted the continued debate around the future of the LISA. While it’s encouraging to see it on the agenda, we believe now is the moment to take action. 

“Small, pragmatic changes – such as increasing the property price cap and adjusting the unauthorised withdrawal penalty – would ensure the LISA continues to deliver for first-time buyers in a fast-changing economic landscape. These aren’t radical changes – they’re common-sense updates that would make a great product even better.”

Byrnes also highlights a less-well-understood issue for the LISA – why major legacy banks don’t offer the product.

“It’s also important to clear up a common misconception: banks don’t avoid offering the LISA because of mis-selling concerns,” he says. “The reality is that administering a LISA is significantly more complex than other ISAs due to the need for real-time connections with HMRC. 

“For many larger institutions with legacy tech infrastructure, this operational burden – combined with the £4,000 annual contribution limit and lower average income of LISA savers – makes it commercially challenging. By addressing these barriers, we can unlock greater provider participation and wider access.

Ultimately Byrnes believes the LISA is a good product worth improving. 

“The Lifetime ISA (LISA) has been one of the most impactful financial products introduced in recent years, helping young people across the UK take control of their financial futures – particularly when it comes to buying their first home. Since its launch in 2017, the LISA has empowered a generation to build long-term savings habits, with the confidence that they can work towards both homeownership and long-term financial security.

“At Moneybox, we’ve seen this impact first-hand. Over the past year alone, we’ve recorded a 34% increase in customers opening a LISA. Importantly, 80% of our LISA savers earn £40k or less, demonstrating how vital this support is for those who need it most. These are hardworking individuals striving for financial independence, and the LISA is giving them the boost they need to get on the property ladder.

“While much focus is rightly placed on increasing housing supply, this remains a long-term goal. In the meantime, we urge the Government to invest in near-term, practical solutions that support aspiring first-time buyers today – helping them save, build deposits, and access affordable mortgages.

“We encourage policymakers to build on the solid foundation already in place and future-proof a product that is delivering real, measurable impact for young people nationwide.”

SAVING THE LIFETIME ISA: LISTEN TO THE FULL PODCAST EPISODE

Photo by cottonbro studio

The post Doubts cast on Lifetime ISA reform appeared first on Mouthy Money.

In our first instalment, we meet Nigel Yates, lead portfolio manager for the AXA UK Sustainable Equity Fund, at AXA Investment Managers, a fund that recently adopted the ‘Sustainability Improver’ label under the FCA’s Sustainability Disclosure Requirements (SDR) regime.*

How does AXA UK Sustainable Equity Fund invest?

We invest in high quality companies with above average growth characteristics that are demonstrating a clear and credible commitment to reducing their carbon emissions to achieve net zero emissions by 2050.

The investment approach centres around investing in companies who have strong long-term growth potential by utilising our People, Planet, Progress thematic overlay to identify companies that are enabling a healthier, greener, more advanced society.

Attractive end markets alone is not enough, however.

We seek out companies that have the ability to deliver growth year after year as a result of their strong business model, culture of innovation and customer focus.

We term this durable profitability and it is at the centre of our investment analysis.

The aim is to have a balanced, diversified portfolio of sustainable growth companies with a low turnover approach and a focus on long-term active company ownership.

Where are you seeing opportunities?

Right now, in our view, the valuation and growth opportunities feel most apparent in the more domestically orientated FTSE 250 Index.

‘Higher for longer’ interest rates have meant companies in sectors such as Real Estate and Building Materials are trading at valuations not seen for many years.

We are terming this the ‘lost decade’ and it includes high quality companies solving environmental and societal issues where demand has been held back by short-term economic uncertainty.

The fund is exposed to Marshalls, Grainger and Genuit where we feel there is the potential for strong recovery.

If the Government can free up planning or if interest rates are able to be cut faster than the market currently expects, these companies could be in demand once again with investors.

What makes you decide to buy into a stock?

This comes down to following the process highlighted earlier. The science is identifying the right companies with growth opportunities and financial metrics such as strong balance sheets, high levels of recurring/repeating revenue and strong cash generation.

We also use our own proprietary methodology for screening companies with the appropriate carbon reduction policies and ESG practices that meet our sustainability objectives.

The art comes from our interactions with management and the valuation we are prepared to pay for the business. We will not invest until we have met the senior leaders of the business and get entirely confident that they can deliver on their growth plans.

We look for businesses with a culture that prioritises a ‘customer first’ mindset and, of course, innovation is crucial.

When all these factors combine with an exciting valuation, we will invest but until it does we are quite happy to remain patient watching from the sidelines.

Check out the Mouthy Money podcast

Tell us about recent changes to the portfolio?

Two companies that have met the criteria described above and have been added to the portfolio are Games Workshop and XPS Pensions.

Games Workshop (GAW) is an unusual company. It is run very much like a family business with a very long-term mindset. Shareholders are treated as less important than their hobbyists (customers), which of course they are!

The result is a business with wonderful financial metrics – growth, high margin, high return on capital employed (ROCE) all resulting in strong cash generation. I think most importantly however is the fact that it feels like Warhammer is on the cusp of becoming ‘mainstream IP’.

It takes a long time to scale a hobby properly. As the number of players grows so does the enjoyment of the game. This gives them pricing power and an ability to expand their monetisation opportunities. GAW has proven an ability to grow sustainably over the last 10 years and the next 10 could be even more fruitful for the business.

There is also lots to like about XPS Pensions which is a specialist pension consultancy offering advice and administration services to UK trustees and pension schemes. It has high levels of recurring income, an inflation-linked fee model, low client attrition, a well-diversified client base and regulatory change continues to be a strong driver of new business.

The market share opportunity within the pensions industry is significant and the adjacent insurance industry could offer another material growth runway in the fullness of time. The level of opportunity for this business could sustainably deliver double-digit revenue growth over the medium-term.

What is your highest conviction view right now?

In our view the market is very short-term focussed right now. Benefit of the doubt and consistent execution seem to count for nothing if a company can’t in the short term disprove a market fear.

This applies right now to Trainline which is the leading independent rail and coach platform selling tickets to millions of customers worldwide.

The recent Government announcement of a ‘Great British Railway’ ticketing website and app to rival Trainline’s offering has caused investors to panic. This is despite the last government developed App being the infamous ‘Track and Trace’ one developed during Covid.

In the fullness of time, it is likely that Trainline’s superior technology and customer focus will ultimately prevail but in the meantime, patience is required.

My fear is that the valuation disconnect with the fundamentals of this business may not go unnoticed and another Great British technology success story is lost before it reaches its full potential.

What do you think of efforts to boost the UK stock market?

I think some of the performance and valuation differential that the UK stock market has experienced relative to other international venues is related to capital flows.

There has been the much-publicised decline of UK pension allocations in favour of pursuing ‘US exceptionalism’.

I’m sure reversing this has been thought about in depth by the UK Government as a healthy stock market is essential to a prosperous domestic economy, which provides the necessary tax revenue to fund essential public services.

Whilst some of the solutions to resolve this might be complicated there are a number of things that can be done in the meantime.

If the Government does nothing else but provide economic stability and remove barriers to invest, such as regulation and ponderous planning decisions, then this will provide a more desirable background to attract capital flows back into the UK market.

What do investors get wrong about your asset class?

The perception of the UK is that it is an old economy, defensive market. There are however lots of high growth, high quality companies with digital first business models.

We also lead the world in corporate governance practices which provides plenty of opportunities for a UK-based sustainable fund.

What is the best advice you could give to an investor in your fund?

Patience is the key attribute that an investor in the stock market must have. Markets tend to underestimate the power of long-term compounding because of a structural focus on short-term earnings.

The best returns come from compounding but compounding by its very nature takes a while, so it’s easy to ignore. Our approach remains centred on owning good quality businesses that can reinvest and compound their returns over time.

I remember when I first invested in RELX, I wanted something that could consistently grow despite the economic conditions. At the time, it was considered by the market as being slightly dull. History has shown that was wrong!

We as an industry are guilty of trying to find the best performer in any given year. However, the best companies to own in my experience are those that deliver solid (not best) returns year in, year out.

FUND SNAPSHOT: AXA UK Sustainable Equity Z Acc

• Fund size: £66.09M
• Ongoing charges: 0.84%
• 5-year cumulative performance: 27.55%
• Since launch: 98.82%

TOP 5 HOLDINGS

1. AstraZeneca 5.55%
2. London Stock Exchange Group 4.28%
3. RELX 3.87%
4. Compass Group 3.33%
5. HSBC Holdings 3.29%

TOP 5 SECTORS

1. Financials 22.37%
2. Industrials 18.31%
3. Health Care 14.19%
4. Consumer Discretionary 13.99%
5. Technology 9.61%

Figures correct as of 28/02/25.

Source: https://funds.axa-im.co.uk/en/individual/fund/axa-uk-sustainable-equity-fund-z-accumulation-gbp/#performanceRisk

Past performance is not a reliable indicator of future results.

Companies shown are for illustrative purposes only and may no longer be in the portfolio later. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.

*Please visit AXA’s Fund Centre where further information is included in the Consumer Facing Disclosure (CFD) Document which outlines the Fund’s sustainability approach – https://funds.axa-im.co.uk/en/adviser/fund/axa-uk-sustainable-equity-fund-d-accumulation-gbp/#documents

Photo by P. L. on Unsplash

The post Investing Ideas: AXA UK Sustainable Equity fund manager on Games Workshop, reducing carbon emissions and FTSE 250 opportunities appeared first on Mouthy Money.

One of the funniest aspects of Labour’s time in Government so far has been its ability to implement things we think should be Tory policies. 

Scrapping NHS England and slashing welfare hardly feel like core Labour voter issues and the Government has the backbench disquiet to show for it.

But there is another, inherently weirder area that Labour is implementing a Tory policy by stealth – ISAs.

When it came to power, Labour killed the Tory ‘Brit ISA’. It was a rubbish policy poorly thought through. 

So why are they now reintroducing it by stealth?

ISA reform

Ahead of the Spring Statement rumours abounded that Chancellor Rachel Reeves had her sights set on a cut to the annual cash ISA allowance.

Currently everyone over the age of 18 gets £20,000 allowance to use how they wish in an ISA. The exception here is the Lifetime ISA (LISA) which has a limit of just £4,000.

Supposedly, Reeves was looking to cut the cash limit to £4,000 too. This, so the story goes, would encourage investing over cash deposits which would be good for long-term savings growth. 

But while the Government has shied away from anything so specific for now, it has committed to looking at reforming the ISA system. Here’s exactly what it has said:

“The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.”

The interesting bit in this (for me, a money nerd) is the bit that says “support the growth mission”. This sounds specifically coded as an implication that the allowance could be directed at British investments.

Stealth Brit ISA

So are we about to get the Brit ISA by stealth? I’ve heard of stealth taxes but this is next level…

As a reminder: the Brit ISA was supposed to be a specific additional allowance for investing in British assets. It was criticised for being a difficult to implement idea with nothing more than a token impact on markets. 

The truth was that how you classify a British investment/asset is extremely difficult. Scottish Mortgage Trust is a UK-based investment trust and is traded on the UK FTSE. But it invests in loads of foreign companies. It meets the market criterion, but not the spirit of a ‘British Investment’. You can make this case for all sorts of stuff.

Labour, sensibly, ditched the whole thing as a waste of time gimmick. But it now sounds a lot like it might be back on the menu – potentially on even worse terms because the original Brit ISA was at least offering extra allowance (not just sucking up some of the existing one). 

Ask our experts your money questions

Tin foil hat time

If I’m going to put on a tinfoil hat at this point here’s what I’d then say:

Any attempt by the Government to force people to own UK-based assets over other foreign investments is what we like to call ‘financial repression’.

Financial repression was a tool used by Governments after World War Two to make the national debt seem smaller. It did this by forcing people with savings to hold British assets such as bonds. 

Those bonds saw values grow slower than relatively high inflation, which meant the face value of those bonds diminished. All the while the Government was able to increase its tax take in line with inflation. 

It made the debts look smaller and the Government more solvent. 

Here’s the rub: someone has to lose. The losers were the bondholders. The bondholders were FORCED to hold those bonds by the Government with tools such as capital controls that prevented money going abroad (something we now take for granted).

We’re not quite there yet, but compelling investors to buy British through their ISA allowances (when inflation is higher than it should be) is starting to look awfully familiar.

But maybe its just me (and my tin hat). 

Image courtesy of HM Treasury Flickr

The post Get ready for the stealth Brit ISA appeared first on Mouthy Money.

Selling an investment might be on your mind when markets are down. In recent weeks, financial markets have been anything but calm. 

With headlines screaming about inflation fears, geopolitical tensions, and unpredictable shifts in major indices such as the S&P 500, it’s no surprise investors are feeling jittery. 

For many, the instinct might be to sell off investments and retreat to the safety of cash. But selling in a panic rarely pays off. Deciding to offload your investments is a big move, one that deserves careful thought, not a knee-jerk reaction to the latest market wobble. 

Whether you’re a seasoned investor or someone managing a modest portfolio, there are critical factors to weigh up before hitting the sell button. 

The most important considerations for when you should sell an investment should reflect your own life, long-term financial plans and the fundamentals of your portfolio. 

We’re going to look at the five big reasons why you might be considering selling investments, including: market turmoil, chronic underperformance, cashing in on success, portfolio rebalancing, and planning for retirement.

1. Market turmoil

Let’s start with the elephant in the room – market turmoil. Right now, it’s hard to escape the sense of unease particularly as the President of the US plays fast and loose with economic warfare. 

It’s tempting to see red numbers on your investment app and think: ‘time to get out!’ But selling during a downturn often means locking in losses rather than escaping bigger losses.

History tells us markets tend to respond sharply and build slowly. This makes the immediate sense of loss more painful than the gratification of gains over time. 

Investment markets across the world and spanning a wide range of sectors have weathered storms such as the 2008 Great Financial Crisis (GFC) and Covid, only to recover and climb again. 

That said, turmoil isn’t always just noise. If the current volatility is tied to deeper structural issues – such as a prolonged economic shift, or a sector-specific collapse – it might signal a need to reassess. 

The key here is to put into perspective whether movements are down to short-term panic or long-term trends. 

Samantha Rosenberg, co-founder and chief operating officer at investing app Belong comments: “When markets drop, it’s crucial to slow down and step back from the noise.

“Sensational headlines and spicy soundbites from politicians may grab attention, but they rarely support sober decision-making. Quite the opposite, in fact. The market-wide flurry tends to fuel fear, triggering our inherent loss aversion. 

“With this, a little bit of perspective goes a long way. At the time of writing, the market is approximately 9% off its all-time high, which is about where it was in September 2024. Therefore, if you invest today, you are getting the same price you would have got if you invested six months ago.

“Market fluctuations are normal, and reacting impulsively often does more harm than good. After all, you don’t make a loss when the stock price falls; you make a loss when you take an active decision to sell your portfolio while the price is down.”

Ask yourself: Is this a temporary blip, or a sign of something more systemic? Look at your investment’s fundamentals – company earnings, sector outlook, or fund performance – and compare them to broader market conditions. 

If the foundations still hold, holding tight might be wiser than selling into a dip. Timing the market is notoriously foolhardy, even for the pros.

2. Chronic underperformance

Beyond the daily ups and downs, there’s another reason to consider selling: chronic underperformance. Maybe you’ve held onto a stock or fund that’s been lagging behind its peers for years. 

Take the UK retail sector as an example – some high-street names have struggled to adapt to online competition, leaving investors with lacklustre returns. If an asset consistently fails to deliver, it’s worth asking whether it’s still pulling its weight in your portfolio.

Underperformance isn’t just about comparing numbers to a benchmark such as the FTSE All-Share Index. It’s also about opportunity cost.

Could that money be better invested elsewhere? Before you sell, dig into why it’s underperforming. Is it a temporary hiccup – like a company navigating a tough quarter – or a sign of irreversible decline? 

Check analyst reports, earnings calls, or even news about leadership changes. If the outlook remains grim with no turnaround in sight, selling might free up capital for more promising opportunities. 

Caution is however warranted – sometimes investments that have underperformed for years are forgotten by the market and due a turnaround. This could be an indication it is worth adding more to that position as its potential for a rebound increases. But it is essential to understand the fundamentals behind the underperformance and whether they are cyclical or systemic issues.

And be sure to factor in any tax implications, like Capital Gains Tax (CGT), which could nibble away at your proceeds.

3. Cashing in on success

On the flip side, sometimes selling isn’t about dodging losses – it’s about pocketing wins. Imagine you invested in a tech firm a few years back and its share price has soared thanks to a breakthrough product. 

Your initial stake is now worth considerably more. Well done! But here’s the dilemma: do you hold on for more growth, or cash in before the tide turns?

This is where greed and realism collide. Selling a winner can feel counterintuitive – why ditch something that’s doing so well? If your investment has hit a personal target (say, a 200% return), or if valuations look overstretched compared to earnings, it might be time to take profits. 

You don’t have to sell everything – trimming your position can lock in gains while keeping some skin in the game (more on rebalancing below).

For UK investors, remember the CGT allowance (£3,000 as of April 2024) – selling strategically can help you stay within it depending on your holdings. 

Ask our experts your money questions

4. Portfolio rebalancing

Investing isn’t always  a set-it-and-forget-it game. Over time, your portfolio can drift out of shape. 

Maybe your equity holdings have ballooned during a bull market, leaving you overexposed to stocks, while your bonds or cash sit neglected.

 Or perhaps a single sector now dominates your mixture. This is where portfolio rebalancing comes in, and selling might be part of the fix. Rebalancing is an important step to ensure your portfolio – either through success or not – has developed too much exposure to one particular market or asset class.

Hal Cook, senior investment analyst at investment platform Hargreaves Lansdown explains: “It’s important to check if your portfolio needs more diversification and understand where you are invested.

“The problem is that determining exactly how diversified your portfolio is not always as easy as you might think. For example, an investor could buy a global fund, a US fund and a technology fund where there could be more overlap in these funds than it seems.

“The MSCI World index currently has 74% exposure to the US. The MSCI technology index has 90% exposure to the US. The MSCI World and MSCI USA indices have 25% and 31% exposure to technology respectively, which is likely a bigger overlap with the pure technology fund than you may have thought. 

“To top it off, all these indices have the same top three investments: Apple, Nvidia and Microsoft. So, although you are buying three seemingly quite distinct funds, in reality there is a big overlap in the underlying holdings.

“Conversely, an investor may have a portfolio with one provider which only has one or two holdings in it. On the face of it, this would appear to be the very definition of a concentrated portfolio. However, it’s quite possible that they might have other portfolios with other providers, meaning that overall their investments are quite diversified.”

Rebalancing is about risk management. A portfolio that’s too stock-heavy could take a bigger hit in a crash, while one skewed towards low-yield bonds might not grow enough to beat inflation. 

The classic 60/40 split (60% stocks, 40% bonds) might not suit everyone, but whatever your target allocation, check it annually. Selling overweight assets – like a tech stock that’s tripled – can bring things back in line. 

“The important thing for all investors is to understand exactly what they own, whether they have a concentrated portfolio or not, and if they do, that they are happy with the risks that poses,” Cook adds.

It’s not about abandoning winners though. It’s about ensuring your portfolio reflects your goals and risk tolerance. And if markets are turbulent, rebalancing can double as a chance to buy undervalued assets with the proceeds.

5. Retirement

Finally, retirement looms large for many investors. If you’re nearing that milestone, selling investments might be less about market conditions and more about life planning. 

The closer you get to drawing down your pension or living off your portfolio, the less risk you might want to stomach. A 30-year-old can afford to weather a multi-year bear market. A 65-year-old, not so much.

This doesn’t mean selling everything at once. It’s about shifting gears. Moving from growth-focused assets (such as small-cap stocks) to income-generating ones (such as dividend-paying blue-chips or gilts). 

Selling growth assets to fund a more stable income stream can make sense, but timing matters. 

Offloading during a downturn could shrink your nest egg, so consider a phased approach, selling gradually as retirement nears. And don’t forget tax wrappers such as ISAs or SIPPs, which can shield your gains from HMRC’s grasp.

For those near to these kinds of decisions it is important to consider whether financial advice would be a beneficial and affordable option. 

This is especially the case with products such as pensions which can have significant tax rules to navigate. Plus, important considerations such as inheritance tax (IHT) start to come into play (although it is important to have in mind at any age depending on your net worth). 

Think, don’t panic

Market turmoil might be the spark that gets you thinking about selling, but it shouldn’t be the driver. Whether it’s cutting losses on a dud, cashing in a winner, rebalancing your mix, or preparing for retirement, every decision needs a clear rationale. 

Start by revisiting your goals. Why did you invest in the first place? Then crunch the numbers: fees, taxes, and potential returns all play a part. And if you’re unsure, a chat with a financial adviser can cut through the noise.

Selling investments isn’t a sign of defeat, it’s a strategic choice. But in a world of 24/7 news and market swings, the biggest risk isn’t always the market itself, it’s acting rashly. So, take a breath, weigh your options, and make your move when the time’s right. Your future self will thank you.

This article is provided for informational purposes only. All investing carries risk and you could lose money. If in doubt, seek professional advice.

Photo credits: Pexels

The post Key things to consider before selling an investment appeared first on Mouthy Money.

Who does the Government think it is fooling when it says we’re just getting a run of the mill update and not a full Budget from Chancellor Rachel Reeves?

Rachel Reeves is due to deliver her second fiscal announcement of her career as the Chancellor of the Exchequer on 26 March.

It would be really easy for me to just list out what’s coming up. We don’t know a lot but we do know she might be of a mind to tweak the cash ISA allowance.

We also know that her and her boss, Prime Minister Keir Starmer, now seem quite keen on some fairly substantial welfare cuts – plus a mini bonfire of Government quangoes that cash cheques and do little else.

So far it’s all a bit of a DOGE tribute act. Which is weird for a left-wing party but here we are.

But the bone I’m keen to pick today isn’t about these policy measures. If you’d like to hear more about that in detail, please have a listen to our latest podcast episode with interactive investor personal finance editor Craig Rickman instead.

No, as the title suggests, the problem I’ve got is the fiction we’re all being told to believe that this somehow isn’t a ‘Budget’.

Budgets vs Statements

Now, the difference between a Budget and a Statement is one of measures. The Budget contains lots of tax and spend measures while the Statement just has the fiscal forecasts and other numbers update.

But in practice does it ever work like this?

I would argue if Rachel Reeves is about to gut £6 billion from the welfare bill she is veryn much not just doing a Statement – it is a full-blown Budget.

Okay, well, why does that matter? It matters because:

a. Reeves said she’d only do one Budget a year. If she admits that has immediately been upgraded to two, it is admitting the first Budget was, well, a bit of a failure for not getting stuff buttoned up for 12 months.

b. It matters to big and ugly stuff like the bond market. Everyone from Westminster to the Square Mile is now quite nervous about upsetting the so-called ‘bond vigilantes’ and triggering another Truss-style meltdown.

Ask our experts your money questions

If Reeves admits she’s having to do a full whack announcement (and with it, more debt, spending, tax, etc that comes with that) then the bond market might be quite unhappy about more uncertainty on uncertainty. It risks scaring the horses, so to speak.

In reality this all doesn’t really matter that much, but the fiction that we’re just getting a perfunctory business update is working quite hard to play down some of the fairly serious problems facing the UK economy. By not facing that head on we’re just trying to minimise big problems that need tackling – ASAP.

Photo credits: HM Treasury

The post ITS NOT A BUDGET OKAY appeared first on Mouthy Money.