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This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Investments rise and fall in value, so investors could make a loss.
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Full podcast episode transcript
Susannah Streeter: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. I’m Susannah Streeter – Head of Money and Markets.
Sarah Coles: And I’m Sarah Coles – Head of Personal Finance.
Susannah Streeter: And we have been very busy here at HL, unwrapping the latest Savings and Resilience Barometer and pouring over all of its secrets.
Sarah Coles: Yes, we do this major report twice a year – and it’s full of goodies – so we want to take you through some of the highlights, in an episode we’re calling ‘Singled Out for Tough Times.’
Susannah Streeter: As you can tell, there is a focus on single people and the weaknesses in their financial resilience, so we’ll be going through the detail with HL Senior Analyst, Nathan Long, who is really steeped in the detail and history of this report.
Nathan Long: Sure am – thanks for having me, Susannah.
Sarah Coles: We’ll also be speaking to Helen Morrissey – our Head of Retirement Analysis – who’s been exploring some fascinating details around pension planning in the Barometer.
Susannah Streeter: Always with an eye on pensions, we’ll be speaking to Matt Britzman about some of the companies that investors might want to look at when they’re building a retirement portfolio. And we speak to Emma Wall – our Head of Investment Research and Analysis – for a funds perspective too.
Sarah Coles: So, we should start with a bit of background on the Barometer. This is a piece of research we do every six months in partnership with Oxford Economics. It brings together some massive bits of data with statistical modelling to build a picture of people’s financial resilience – from how much savings they have to whether they’re on track for a reasonable retirement income. It gives us an overall picture of people’s financial resilience and reveals any gaps in people’s finances.
We’ve been running it for a while now, so we have data stretching all the way back to before the pandemic, so we can see how things have changed over time.
So, let’s bring Nathan back – he can tell us a bit about those changes. So, Nathan, what are some of the highlights?
Nathan Long: If we consider that the average score for households is 61 out of 100 for their resilience – that’s up 4 points from 2019, but down 2 points since the peak of resilience that we had
during the pandemic – and that’s when we had higher resilience, largely driven by lockdown savings. It’s those additional savings that are largely responsible for the improvement in resilience. On average, around two-thirds (65%) of households have enough emergency savings, compared to before the pandemic when it was less than half (47%). We can expect those savings to build because we have more cash left at the end of the month – at £235 – and that’s over twice the pre-pandemic level of £110.
What’s interesting is that, although real disposable income is down since before the pandemic – as a nation, we’ve cut our spending hard enough that our financial resilience has improved. That’s an impressive result, but it means that, as wages grow ahead of inflation, more households have a chance to get back on track.
Susannah Streeter: But those effects haven’t been felt evenly, have they?
Nathan Long: No, they haven’t – and the improvements haven’t reached everyone’s finances yet – and, as life gets easier for some people, it continues to feel like one impossibly difficult thing after another for others.
Single people haven’t benefitted from the recovery anywhere near as much as those in a couple – and single people are still facing massive financial challenges. They’re shouldering all the household costs alone, which is always gonna be more difficult. They also pay the singles tax – which means that, even though they get through half as much as a couple, they face much higher costs.
They’ve actually just got £40 left at the end of the month – so that’s up £5 from where they were, pre-pandemic, but it’s £345 lower than households that are headed by a couple.
The proportion with enough savings has also increased far less.
Sarah Coles: Why is this? What are they doing wrong?
Nathan Long: They’re not really doing anything wrong – in fact, they’re spending less than their coupled-up counterparts on the nice-to-haves – and it comes down to the fact that they’re forced to spend more on the essentials.
On average, a single adult spends £8,100 to cover the cost of housing, bills, groceries. That’s marginally higher than the equivalent average per-person spend for a couple (£7,800). As a fraction of their net income, the difference is much larger – so it’s 36% for a single, compared to 29% for a couple.
It means that they’ve got to scrimp and save on the nice-to-haves. For example, each member of a couple spends £1,800 on restaurants and hotels – that’s 30% higher than a single adult. Similarly, couples spend £1,950 per person, on average, on recreation and culture – that’s nearly 20% higher than a singleton.
Susannah Streeter: And what about single parents?
Nathan Long: Single-parent households are particularly badly off – partly because they either can’t
work or have to add childcare to the burden of costs they face alone. 72% have poor or very poor financial resilience – that’s twice the national average.
On average, they have £50 left at the end of the month, and only one in four have enough emergency savings – which we think is three months’ worth of essential spending. They’re also more likely to be behind on bills and on debt repayments.
Sarah Coles: Are there any other groups that are still struggling?
Nathan Long: Yes – renters are wrestling with their runaway rental costs. They tend to be younger and on lower incomes, so the rent hikes that they’re getting are hitting harder. As a result, more than half of renters (54%) have poor or very poor financial resilience. They also only have enough savings to cover two weeks’ worth of essential spending on average – when the minimum we recommend is three months’ worth.
Susannah Streeter: Of course, we’ve heard a lot about the woes of people who’ve had to remortgage while rates have been higher. What does it show about them?
Nathan Long: Yes – remortgaging has taken its toll. One in 5 (18%) of those who’ve remortgaged onto a higher rate between the end of 2022 and the middle of 2024 have poor or very poor financial resilience, compared to only one in 10 (12%) of those who’ve yet to remortgage. These remortgages – they have also seen the money that they have left over at the end of the month fall. So, it’s now £315 that they have left over at the end of the month, but it’s £95 less than those who are still on those lower rates and haven’t yet remortgaged.
One of the key things to stress is that both groups of homeowners are better off than renters.
Sarah Coles: In terms of the outlook, what can people expect?
Nathan Long: Things have been really up and down since the onset of the pandemic, so it might come as some comfort that the overall score for resilience is expected to be relatively flat over the next 12 months.
If you dig a bit deeper into the different areas of people’s finances, there is gonna be some change. We’re expecting savings to keep growing, as rising wages gives people more wiggle room. However, we’re also expecting issues around the affordability of debt and property because, while interest rates are expected to fall, they’re gonna be significantly higher than the levels we were used to a few years ago – which is going to bring its own share of challenges for households.
Susannah Streeter: Plenty for us to keep an eye on, Nathan. It’s great to have you on the podcast.
Nathan Long: Thanks for having me.
Susannah Streeter: Now, the Barometer digs into all areas of our finances, including retirement – so let’s bring in Helen Morrissey, who’s been exploring the retirement side of things.
And, Helen – you’ve made something of a change to parts of the Barometer, haven’t you?
Helen Morrissey: Yes – we’ve made some important changes to the Barometer when it comes to measuring financial resilience in retirement. You’ll be aware that, int the past, we’ve targeted a household’s ability to achieve what is known as a moderate income in retirement – and we’ve defined that using the Pension and Lifetime Savings Association as to what that costs per year.
Now, when they released the latest standards earlier on this year, they made a change to the methodology in that they also included more aspirational items in the targets – so, for instance, our experience of the pandemic means that, for some, the ability to spend time doing things with family and friends is increased – and this could result in extra meals out, day trips, or holidays.
Now that, combined with the high inflation we were experiencing, meant that the cost of a moderate retirement shot up by a whopping 26.8% per year for a couple to around £43,000 – and it was up an even more eye-watering 34.3% per year for a single person. This means a moderate retirement income for them costs around £31,300 per year.
Susannah Streeter: They sound like massive increases. What impact might that have and how has that affected the Barometer?
Helen Morrissey: Yes – they are huge increases – and, if we had adopted the PLSA standards for a moderate retirement for the Barometer, then we would have seen large decreases in households’ retirement resilience.
The reality is that, though for some people the ability to do more in retirement is important, it isn’t the case for everyone. In practice, many people get along fine in retirement on much less than this. What I’ve found most striking is that there are people on average earnings in the UK who would fall short of the moderate income standard despite the retirement standard, assuming that people own their own home in later life.
Our updated approach increases our benchmark for a moderate retirement income by inflation, rather than the big jump set out in the PLSA standards. This acts to increase the cost of retirement accurately, while not adding additional goods and services to the requirement of a moderate retirement income. This means that we would see the cost of a moderate retirement rise by 7.3% – substantially lower than the figures I outlined earlier.
Sarah Coles: How much does a moderate retirement income cost given our new approach?
Helen Morrissey: According to our estimates, a moderate retirement income for a single person comes in at £25,000 per year – and, for a couple, it costs £36,480 per year – so that’s significantly less than the PLSA. These figures include the State Pension – which currently stands at around £11,500 per year for a full New State Pension – but you will need to consider tax and your personal circumstances.
Susannah Streeter: I’m intrigued on just how a moderate retirement income is defined. Can you tell me about what’s included in that?
Helen Morrissey: Absolutely. A moderate retirement income covers all of your basics, but with more security and flexibility. You’ll be able to spend more on food, for example, and you could also eat out that bit more often. Importantly, you would be able to afford things like a two-week holiday in Europe once a year, which you couldn’t do on a minimum income – and you could also afford to run a car.
Sarah Coles: Thanks so much, Helen – it’s good to take the temperature of what we need in retirement.
Susannah Streeter: Now, there’s the question of how we invest to get to retirement – so this feels like a good time to bring in Matt Britzman, to have a look at some of the listed companies that might be ones to watch for people investing for retirement.
Before we start, I should add that investing in individual companies isn’t right for everyone – that’s because it’s higher risk. Your investment depends on the fate of that company – and, if that company fails, you risk losing your whole investment. If you cannot afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
So, Matt – just give us an idea of what people should be aiming for.
Matt Britzman: As we all know, objectives change depending on how long an investor has until retirement. Thinking about those with time on their side, I think there are three key characteristics to look for in a company: strong growth prospects, a dominant market position, and a history of adaptation.
Susannah Streeter: So, what is the first company that you’ve looked at?
Matt Britzman: It comes straight out of the Warren Buffett playbook – perhaps the master of finding investments to hold for the long term. It’s a beverage giant – first launched in 1886 – and now selling products across over 200 countries. If you haven’t already guessed, it’s Coca-Cola.
Coca-Cola’s brand is, of course, one of its core strengths. It boasts truly global presence in a market that’s unlikely to disappear any time soon. That brand gives it pricing power, which, in turn, allows the giant to perform well in a range of environments. Look to recent results for proof – first-quarter organic revenue was up 11%, with higher prices helping to offset cost inflation.
Sarah Coles: Thanks, Matt. So, how does a company like Coca-Cola keep that brand strength over such a long period of time?
Matt Britzman: The answer is money – it takes money to make money. Coke’s spent almost $100bn on marketing over the past decade – and that’s not expected to slow any time soon. It also has a slightly different business model to its closest rival, Pepsi. Rather than getting hands-on with manufacturing and bottling, it focuses on selling the syrup and marketing the brand. That helps margins and frees up more cash for things like marketing.
Quality operations and dependable performance are two of the reasons it’s been able to grow the dividend for the past 61 years. The 3.1% yield on offer isn’t the highest in the market, but you’d be hard-pressed to find a company with a longer track record. Their yields are variable and not a reliable indicator of future income.
Now, growth won’t shoot the lights out – and, at over 21 time next year’s earnings, it’s not a cheap stock, so new investors will have to pay up for what’s on offer.
Susannah Streeter: Yes – there is no such thing as a free lunch! Who d’you have lined up next?
Matt Britzman: The second is a little closer to home and probably not a household name. RELX is a UK-listed business – and, bucking the trend of legacy sectors we tend to see in UK markets, it’s actually one of the world’s leading data experts.
Its data analysis tools span across a range of areas, like helping insurers set prices, governments fight fraud, and banks follow anti-money laundering rules. These important tasks don’t stop, even when the economy is down. Add in long-term recurring contracts, and revenue tends to be relatively steady and, importantly, predictable.
Sarah Coles: You mentioned earlier looking for companies with a history of being able to adapt, so how does that apply here?
Matt Britzman: Yeah – so RELX is a perfect example. Over the past 15 years or so, it’s invested heavily in innovation and transformed its revenue streams. Back in 2000, only 22% of revenue was digital; that’s risen to over 80% for the past four years.
AI now represents a new opportunity to adapt again. Huge troves of data start to shine through when you build and train AI tools on top of them. New AI tools are coming out – and there’s scope for RELX to capture that new demand – but it’ll probably take some time to really embed new products – and there’s pressure to deliver.
Susannah Streeter: Yeah – the AI craze is certainly opening new doors. Who d’you have as your last pick?
Matt Britzman: I thought I’d pick a more growthy name to finish off. And – going back to my three characteristics – I think Tesla offers a dominant market position – and long-term growth drivers.
Tesla has long been an enigma – an EV-maker with future hopes pinned on areas from robotics to energy storage. There’s no doubt Tesla has been a dominant force in the EV world, but recent performance has been tough. We’re in an EV slump – early adopters have already bought their Teslas, and we’re left with a group of consumers who aren’t fully on-board with the idea of trusting an electric car.
‘Is this slump temporary?’ – I think so. ‘Will it be over soon?’ – probably not. Recent delivery numbers were better that expected, but this isn’t the time to claim victory. Tesla would need a mammoth second-half to match last year’s volumes, which is probably unlikely.
Sarah Coles: You mentioned some of those other growth areas – what looks most interesting to you?
Matt Britzman: Theare are no shortages of growth angles here. The question is whether they materialise – and how long that takes. Perhaps the biggest nugget from the recent delivery update was the massive jump in deliveries form the energy storage business. The AI craze is set to cause a multi-generational spike in energy demand. This was the first sign that Tesla’s product looks set to be a winner.
You’ve then got the software angle and the more outlandish units like robotics. Self-driving – as an example – has seen a step-change this year and improvements should come at a faster clip as Tesla is no longer limited by computing power. I’m not convinced markets have quite grasped how much progress has been made, but I come back to that initial thought: ‘How long before these areas start to generate profit?’ I think it’s coming, but probably slower than the bulls would like. Having a long-term horizon is key and there are, of course, no guarantees.
Susannah Streeter: Thank you, Matt – certainly some really interesting food for thought there.
Remember – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Of course, for retirement, funds will also tend to be part of the picture. So, with that in mind, let’s bring in Emma Wall – our Head of Investment Research and Analysis – who’s been looking more closely at funds. Before we get into them, it is worth noting here that investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest – and make sure any new investment forms part of a diversified portfolio.
Sarah Coles: What are the three funds you’d like to highlight to our listeners, this episode?
Emma Wall: I’d like to start with a global equity fund. We think global equity funds provide a good foundation to an investment portfolio focused on long-term grown, such as in the accumulation stage of retirement saving.
Investing in companies across the globe provides a good level of diversification in a single fund. The Legal & General Future World ESG Developed Index Fund provides broad exposure to a range of large and medium-sized companies in developed markets – such as the US, Japan, and Europe – while being mindful of environmental, social and governance (ESG) issues.
It does this by investing more than the broader global stock market in companies that score well on a variety of ESG criteria – such as the level of carbon emissions generated and number of women on the board. If companies score poorly on these measures, the fund reduces exposure.
In total, the fund holds around 1,400 global companies, focused towards sectors such as technology, pharmaceuticals, and financials. The fund has the flexibility to invest in smaller companies – which adds risk, if used.
Susannah Streeter: Thanks, Emma. What’s the second one on your list?
Emma Wall: We think Asian funds are a great way to add diversification to a portfolio that’s focused on long-term investing, which makes them ideal to consider for a SIPP.
Asia is home to some of the most exciting economies in the world that have significant potential for future growth – although they often include investments in emerging markets, which makes them higher risk.
Schroder Asian Alpha Plus aims to provide growth by investing in larger companies across Asia – such as Hong Kong, India, and Taiwan. We think the fund can offer a globally diversified portfolio – exposure to Asian markets in the pursuit of long-term growth.
The fund can invest in smaller companies, emerging markets or derivates – all of which add risk, if used.
Sarah Coles: What about pick number three?
Emma Wall: Finally, we wanted to select a fund for those looking to reduce risk in their portfolio – as most investors should consider this as they approach retirement.
Total return funds are more conservative than the funds that invest only in company shares. They normally, therefore, invest in a mix of investments, including shares, bonds, commodities and currencies. They could help provide modest growth for an investment portfolio over the long-term – and help shelter money when stock markets fall – but are unlikely to keep up with the stock market when they rise quickly.
We like Troy Trojan in this space, which invests in a mix of investments – including shares, bonds, commodities and currencies – and includes some of the world’s best-known companies with highly recognisable brands.
The fund has the flexibility to invest in higher-risk smaller companies – and, while the fund contains a diverse range of investments, it is concentrated, which is a higher-risk approach.
It could form part of a foundation of an investment portfolio, bringing some stability to a more adventurous portfolio, or provide long-term growth potential to a more conservative portfolio.
Susannah Streeter: Thanks, Eamma – certainly some interesting options to consider there.
Further commentary on these funds can be found on our website, along with the charges and risks and Key Investor information.
You’re listening to Switch Your Money On from Hargreaves Lansdown – and, before we go, there’s time for a quick fact of the week.
Sarah Coles: With delving into the Barometer, I get to take the reins for this – because I’ve been living this data for the past couple of weeks.
So, Susannah – the big question is, after we’ve paid for the essentials, how much money – on average – d’you think people have at the end of the month?
Is it about £200
About £400
Or about £600?
Susannah Streeter: Now you’re testing me. I know wages have been growing faster than inflation – so, on average, this should have been rising, but it is difficult to put a figure on it – so I’ll go down the middle with the ‘£400.’
Sarah Coles: Yes, you’re right – you should probably answer these more often. The actual figure is £401. It is worth saying that, among the lowest earners, this actually falls to £5 – and, amongst the highest earners, it’s £1,004 – so that average covers quite a range.
Susannah Streeter: Yeah – and, of course, it must depend on the month in question too. We’re entering the holiday season now, and I’m not sure anyone is awash with cash after a family holiday!
Sarah Coles: Yes – it’s fair to say that life is never cheap with demanding teenagers!
Susannah Streeter: They’re good at spending our money, regardless of the time of year.
That is all from us for now – but, before we go, we do ned to remind you that this was recorded on 10th July 2024 and all information was correct at the time of recording.
Sarah Coles: Nothing in this podcast is personal advice – you should seek advice if you’re not sure what’s right for you. Investments rise and fall in value, so you could get back less than you invest and past performance is not a guide to the future.
Susannah Streeter: Yes – this is not advice or a recommendation to buy, sell, or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.
Sarah Coles: And this hasn’t been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research – however, HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.
Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So, all that’s left is for me to thank our guests: Nathan, Helen, Matt, Emma, and our Producer, Elizabeth Hotson.
Susannah Streeter: Thank you very much for listening. We’ll be back again soon – goodbye!