Tiring of retirement: Should you retire early?

Susannah Streeter: Hello and welcome to the Switch Your Money On podcast. I am Susannah Streeter, I’m Head of Money and Markets here at Hargreaves Lansdown and as usual, I’m with Sarah Coles, the Head of Personal Finance. So, Sarah, we’ve been talking a fair amount about retirement patterns this week, but I haven’t asked you yet what your dream retirement would look like.

Sarah Coles: Well until recently I’d have said I want to keep working until my 80s, because I’m really easily bored, but I’ve been speaking to a number of people in their late 70s this week, and increasingly I realise probably won’t have a vast amount of say in when I stop work, because everyone I know in this age group is either too ill to work or is caring for a partner. So, it’s not a very cheery answer. But, how about you?

Susannah Streeter: Well, I never did do the backpacking trip around the world. I still quite fancy that. I feel too young to be considering retirement, but given how early I get up every day, I do think my priority will be to have a lie-in once in a while.

Sarah Coles: It’s the dream, isn’t it? But yes, so this is what we’re talking about on today’s podcast - retirement. Or, more accurately, the patterns of early retirement that have developed over the past few years, and what it means for people and for businesses struggling for staff. It has had a profound effect on the economy as a whole, so the government is desperate to tempt older people back into work. We’ll be digging into all of that in an episode we’re calling ‘Tiring of Retirement’.

Susannah Streeter: We’ll have Helen Morrisey with us, our Head of Retirement Analysis, who will be exploring the implications for pensions, both when people finish work early and when they return. Hi Helen. So, there is an awful lot for people to consider, isn’t there, when they change their retirement plans?

Helen Morrissey: Absolutely. And there’s some potential pitfalls that people need to be aware of, too. And we’ll be talking through some of them a bit later on.

Sarah Coles: Thanks Helen, we’ll also be speaking to Sophie Lund-Yates, our Lead Equity Analyst, who will talk us through what these trends mean for a host of different businesses. Hi Sophie, you’re exploring a number of sectors this time, aren’t you?

Sophie Lund-Yates: Hi, Sarah. I certainly am. I’ll be looking at a number of different companies in different areas of the economy this week.

Susannah Streeter: Thanks Sophie, I look forward to chatting to you a little bit later. But we’re also going to be looking at what all of this means for employers and for the workforce itself. So, we’ll be speaking to a man who really does have his finger on the pulse of the employment market, Lee Gudgeon’s here, Managing Director at Reed Talent Solutions. So, Lee, we’re going to talk a little bit later about what this trend has meant for you. It certainly must have kept you pretty busy.

Lee Gudgeon: Yes, we have been really busy, Susannah, ever since Covid. So, pre-pandemic, post-pandemic, the labour market has shifted pretty much every month.

Sarah Coles: Well thanks Lee, we’ll look forward to catching up much more later in the podcast. And as usual Emma Wall, our Head of Investment Analysis and Research will be here. She’ll be chatting to Steven Hay, co-manager of the Baillie Gifford Multi-Asset Income fund.

Susannah Streeter: But first, let’s start by looking at just how the world of work has changed over the past few years. Figures from the Office for National Statistics highlighted an exodus of older people from the workforce. Back in July, its statistics showed that since the onset of the pandemic, more than 385,000 people over the age of 50 had moved into economic inactivity, shorthand for they’re not working or looking for work. Now, the data analysts have been exploring the reasons for it, and it appears there are quite a few different things at work. One major factor is ill health. The number of people who are economically inactive because of long-term sickness has been rising since 2019, from around 2 million people to around 2.5 million people. Not all of them are older, but they do make up most of those who are long-term sick for health reasons.

Sarah Coles: Yes, and, interestingly, the rise in ill health began before the onset of the pandemic, but it has definitely exacerbated things. So, the timing of the growth, plus the range of conditions that people are reporting, means it may not be the pandemic itself that caused the rise, but more the lifestyle changes it brought. So, things like working from home, long periods of inactivity, loneliness, isolation, they must all have played a part. There’s also the issue of people not visiting the GP during the pandemic, and struggling to get appointments or care more recently, which could have made chronic conditions worse. But ill-health isn’t the full picture. So, in the government’s study of why people had stopped work between the ages of 50 and 59, a quarter said they had retired, almost a fifth because they said they wanted a change in lifestyle. There’s also likely to be an element of people leaving work in order to care for loved ones. Just over a quarter of people in this age group care for their partner to at least some degree. And around a fifth of women aged 55-59 provide unpaid care for someone, as do around one in six men aged 60-64. So, the ill health in question might actually not be their own.

Susannah Streeter: The shrinking labour market is putting pressure on businesses. Some of whom just can’t seem to recruit the employees they need. While vacancies have dropped back significantly over the past seven months, they are still way above their pre-pandemic levels, and there are more than 1.13 million unfilled vacancies in the UK. Even where employers have managed to fill roles, they need to work harder to retain staff. And, as a result, more are likely to feel they need to offer pay rises. Figures for the three months to December show that regular pay, which doesn’t include bonuses, was up 6.7% in the year, the strongest growth rate seen outside the pandemic period. The Bank of England’s Chief Economist Huw Pill, has warned that this could end up fuelling inflation, even while energy-costs fall. And it’s one reason why the government is so keen to get people back to work. It’s confirmed it is exploring a number of potential options, after speculation it might include tax incentives for over 50s returning to work. But we have, as yet, not had the detail, nor confirmation that anything will come of this exploration.

Sarah Coles: So, the good news for the government is that there’s a decent number of people who would consider going back anyway. So, almost three quarters would consider going back to work, and almost two thirds would do it for the money. So, the December employment figures reflected this, with a record flow out of economic inactivity driven by people going to work. So, a chunk of this is just the seasonal return of students, but we’ve also seen the return to work of a number of people who were previously retired. But the picture’s far more mixed for those who are too sick to work, or caring for someone else, so a return to work may well depend on another area of government support like health or social care. And those just aren’t going to be solved in a hurry.

Susannah Streeter: So, plenty of food for thought there, but what does it all mean for businesses. Well, it does seem like a good time to bring in our Lead Equity Analyst, Sophie Lund-Yates, to talk us through the implications for some of the companies she’s got her eye on. Sophie we can’t really talk about getting people back to work without the world of recruitment.

Sophie Lund-Yates: You’re certainly right there, and that’s why I’ve been digging into Hays. So, Hays is a UK-listed recruitment giant. It’s right at the epicentre of the changing world of work since the pandemic, including helping companies fill skills shortages and navigate the so called “great resignation”. The company operates in four geographic regions, which are Australia and New Zealand, Germany, United Kingdom and Ireland, and the Rest of the World. Hays’ consultants cover 20 professional specialisms, ranging from things like accountancy and finance to marketing or construction. There’s definitely an argument to say they stand to benefit if an unretirement wave rolls in. Its diverse reach means there are roles to suit a wide range of candidates. So, looking at Hays’ wider performance, it’s actually holding up quite well. I mean, there’s always some nerves about the recruitment industry when the economy is worsening, but Hays’ fee income rose 8% in its second quarter, on a like-for-like basis. That included strong growth across temporary and permanent roles, and it’s this balance that I view as a real strength. By some estimates, Hays looks well placed in its sector and I am inclined to agree. That said, a recessionary environment would create tough conditions in the short-term.

Susannah Streeter: So, that’s Hays, Sophie. So, what about a company that might suit older workers?

Sophie Lund-Yates: So, when looking at it from this angle, I’ve been looking at Kingfisher. In terms of names UK listeners will recognise, Kingfisher runs B&Q and Screwfix. But, more broadly, it operates approximately 1,530 stores in eight countries across europe including Castorama, Brico Dépôt and TradePoint. These businesses could well suit an older demographic returning to work as shifts are often flexible and the group’s actually very open about its employee diversity drives. Of course, these are all positives but I’m sure our listeners would like to hear how things are looking in terms of the investment case. So, in that sense, things are looking pretty good. In the third quarter, which I should point out only goes up to the end of October, the group’s sales, ignoring the effect of exchange rates, were up 1.7% and significantly higher than pre-pandemic levels. There’s strong growth in all the group’s regions, and online sales have more than doubled since the pandemic. So far as we’ve heard, trading in the final quarter has also seen good momentum. Kingfisher is being helped by good demand for DIY products which is something that should stick around. At the same time, it’s particularly encouraging to hear the group has plans to reduce its inventory. So, it bulked out its inventory levels to protect product availability because of recent disruption, but this is bad news from a cash flow perspective, so this is an opportunity for growth in that area really. In terms of the risks for Kingfisher, and I know I wang on about this all the time at the moment, but it’s margins. Customers are facing a cost crunch and Kingfisher is also needing to invest for growth and in higher energy and labour costs. So, these factors together mean there’s a lot of pressure for sales volumes to stay elevated.

Sarah Coles: So we’ve covered recruitment and an employer, so what’s the final piece of the puzzle?

Sophie Lund-Yates: That would be learning, or training. So, that’s why I’ve been looking at Pearson, which by its own definition is the world’s leading learning company. This includes materials and physical testing across higher education, then there’s workforce skills, English language learning and virtual learning and the group’s biggest division, which is assessment and qualifications. This segment offers tools to allow people to upskill or reskill across professional and educational qualifications. This clearly lends itself to people that want to return to the workforce but need to hone some different skills, like people of retirement age. There are a couple of things that make the business model attractive, and that includes the fact the group has long term contracts which helps revenue visibility. So, Pearson definitely has a lot of the right ideas and is a natural beneficiary of the increasing trends for things like upskilling. The fly in the ointment is its higher education business, where revenues are continuing to decline. So, these revenues are still really anchored to physical teaching and testing. So, demand for physical textbooks has actually been on the decline for years and that's made Pearson's pivot to digital pretty protracted and painful. Momentum has been impressive in terms of the digital turnaround and full year underlying profits of 455 million pounds at the group level were better than expected. Essentially, there’s a lot to like about Pearson’s longer-term plans, but that’s largely been reflected in the current valuation which has climbed 44% in the last 12 months.

Sarah Coles: Well thanks Sophie, it does look like there’s some companies who could see opportunities in a tight labour market that’s looking to attract older people back to work. But let’s look more in depth now at one company in this area, and speak to Lee Gudgeon, who is Managing Director at Reed Talent Solutions. So Lee, can you give us an idea of the recruitment picture at the moment?

Lee Gudgeon: Yes, I can. So, we are now in February 2023. And I would say it shifted again. If we're thinking post-pandemic, there was a jobs boom, it did get a little bit quieter late last year, but, since then, it has picked up again. The market is now hot. Not very hot like it was a year ago, but it is now hot again.

Susannah Streeter: When you say it's hot, Lee, what do you mean by that? Is there just a real demand for workers and are companies really thinking about the wider picture and going for a different demographic?

Lee Gudgeon: So, what I mean by hot is there are more jobs than there are people. I think that's probably the challenge that employers are faced with. In particular, skillset wise, tech, engineering, healthcare, scientific, those markets there are very competitive for candidates. That's where employers have got to look a little bit deeper about how they upskill, re-skill and attract. Because they are very hard to recruit skilled workers in those sectors.

Sarah Coles: And are they having to, sort of, up their offers and look, not just at things like salary, but also things like maybe more flexible or hybrid working?

Lee Gudgeon: Yes, I think you could say if there was a war for talent, talent has won at this point, which means employers are having to work a whole lot harder to recruit. So, upping their offers can work to a degree, but ultimately there's a limit on that. You can't do that forever. And then you've got your existing workforce to think about. So, you want fairness and fairness in the equity that fits in new business. So, as opposed to just upping offers, it's more about what is the overall package for the workforce, ranging from flexible working to increased pensions to hybrid working and then just the feel-good factor and training in internal mobility that you might be able to cater through potential employees. And then, finally, you've got the ESG agenda, which is much bigger now. So, if you've got a really strong ESG inclusive strategy, you're gonna open yourselves up to more talent.

Susannah Streeter: Is there a particular section of the workforce that is much more attuned to ESGs? So, environmental, social and governance issues at companies?

Lee Gudgeon: I think it'd be fair to say that there is a perception that the millennials and in, whatever Gen Z is, there is the perception that population take more seriously the ESG agenda within potential employers. But, it’s almost like it's the final tick in the box for them. So, they still want the salaries, they still want the hybrid working, they still want training, they still want career progression. So, if you've got an offer on the table from two companies that's exactly the same, but one company's got a really strong ESG agenda, that would probably tick the box to get you into that place of work.

Sarah Coles: So, if we can ask you, just a little bit, particularly about older people in the workforce. So, are there employers out there who are particularly targeting that age group and sort of building their proposition towards them?

Lee Gudgeon: The short answer is yes. I would say it's relatively recent. I think predictions are by 2024, 50% of the working population will be above 50 and we expect that to rise in the coming years. So, it is obviously a huge talent pool if that's 50% of the working age group. Typically, the evidence shows that the 55+ population has home needs, be that caring for elders, be that health challenges. So, they're looking for a bit more flexibility in how they approach work. But, of course, they have a huge amount of life experience, emotional intelligence and capabilities that employers can tap into. With the digital working age now what are we, in the fifth industrial revolution, companies are now far more able to have flexible working and be able to offer packages that this population can be attracted to and can actually weave into their lifestyle.

Sarah Coles: And in terms of those workers themselves, have you seen any evidence of, sort of, people leaving the workforce and then looking to come back and start again? Or is it something that you are hearing people talk about more than you're actually seeing in reality?

Lee Gudgeon: I've seen my mum do it. I don’t know if that counts.

Susannah Streeter: It certainly does count.

Lee Gudgeon: Okay. So, she left the workforce pre-covid and she’s re-entered the workforce in a flexible manner. So, I've seen it within the family. As an employer myself, we have a really good age range of population and we've got individuals that have joined us because you actually lost a loved one and therefore at home full-time, on their own almost looking for that social stimulation. We've got co-members who have retrained themselves looking to want to work in an office out of operational environments that perhaps became a bit more restrictive around times you need to be there, or the physicality of the job. So, I've seen it at home and I've seen us employ this population, and then, with our client base where we do an awful lot of recruitment for, we obviously pitch specific campaigns for them and some of that early talent. And now we've got an inclusive solution where we are looking at reskilling. So, we recruit an inclusive workforce, we retrain them and deploy them into the workplace, because, ultimately, the skills gap is such that employers have got to look for talent in a variety of ways. So, we are now seeing it with a wide range of employers.

Susannah Streeter: I’ve got to ask, Lee, did you find your mum a position?

Lee Gudgeon: No, I did not find my mum a position. No, she was quite capable of doing it herself.

Susannah Streeter: Would you say though, that some employers are more hesitant about employing older workers, or do you think that's changing?

Lee Gudgeon: I think that's changed already. I don't think that exists, no. I think there's something about employers catering for them, but there is also something about the aged workforce accepting that their employers have customers and they have other colleagues that they need to, sort of, fit in with as well. You know, most things, if you reach the middle they work. So, no I don't think we see discrimination. I think one challenge we have seen is a cultural balance. So, if you've got a team with a very wide age range, and let's say that's 20 to 70 or 20 to 75 even, what are the dynamics in that team and how does a 25-year-old cope with managing a 70 year old. So, there’s some upskilling needed, not just to retrain the older generation to get into workforce, but there's actually training within your own employees in how to handle that and how to manage cause there is experience within the elder population that you need to be able to manage.

Sarah Coles: One of the things that we are hearing a fair amount about from government is this idea of trying to persuade people to go back to work. And do you think, realistically, there's any way of persuading retired people that work is the future if that's not necessarily on their radar?

Lee Gudgeon: It's an interesting one. If you were the government right now and then you've got to be thinking how do we manage with this pension pot? If you're born today, aren't you supposed to live to 104 years old? So, when they have a long, long time retired? So, I think the government's going to want to get people into workforce because otherwise it's a long state pension. They're paying out for a high number of people and I'm sure we'll see the retirement age continue to rise, if only to fund the state pension, so the government will be motivated. How do employers, how do the government convince this population to get into work? I think there's something there on employers really making sure that it's attractive enough. What comes out time and time again is they just want a bit of flexibility. If you are caring for someone, be that your parent or your loved one, you do need a bit of flexibility. So, I think that is probably the number one topic, or point, to convincing them to come into work. At the same time, employers do have business needs, so you need to meet them, but if I was tired and I could afford it, would you need to convince me to come to work? That's a tough call, isn't it? If you can afford it, why would you want to go to work?

Susannah Streeter: Although, have you noticed the difference, Lee, in your mum since she's returned to work?

Lee Gudgeon: She's definitely more stimulated. I've seen, probably with people that are married, if you're not retiring at the same time, I think that's quite tricky isn't it? So, that could be a scenario there where once her and my stepdad both retire, will she work then? That'd be interesting. I suspect she will. She's a very busy individual. She's very fit, very healthy. So, I can imagine that she would want to.

Susannah Streeter: Yes, it’s a funny one to think about whether it's better to both retire or actually just have a little bit more time to yourself on your own.

Lee Gudgeon: Yeah, best of both worlds you probably want, don't you?

Susannah Streeter: Thanks so much, Lee, for joining us on the podcast. It will be really interesting to see how all of these trends develop and to find out how your mum's getting on.

Lee Gudgeon: You're welcome. Thank you. Thanks having me on.

Susannah Streeter: Now I’d like to bring in our Head of Retirement Analysis, Helen Morrissey, to explore the implications for pensions from people leaving and returning. So, Helen, we’ve heard that the labour market is really tight, and we need more workers. Why would someone who chose to retire want to come back?

Helen Morrissey: Well, the cost-of-living crisis has certainly played its part. People retired thinking they had enough to live on but then rising costs have bitten into their budgets and many people are now realising their money doesn’t stretch quite as far as they thought. Recent data from the Pension and Lifetime Savings Association showed the cost of a moderate retirement has risen by an eyewatering £2,500 per year over the course of the crisis which means there’s many people who simply don’t have enough to get by.

Sarah Coles: Well that sounds pretty straightforward but there are challenges aren’t there?

Helen Morrissey: Yes, there really are. One key area is retraining. Government research has shown that over two-thirds of older workers who needed to return to work reported they didn’t feel like they had the necessary job skills to help them find a different role. So, there is clearly a real gap here that needs to be filled in terms of helping older workers reskill and giving them the confidence to get back out into the workforce. The other key thing is lifestyle. As mentioned earlier, many older people have caring responsibilities. This means a 9-5 job, five days a week, is unlikely to suit them. This was shown, again, in recent data which highlights the most important factors for older workers when choosing a paid job were flexible working hours as well as good pay, and the ability to work from home. So, if employers are going to tempt older workers back, they are going to need to be really flexible and open to change.

Susannah Streeter: And I suppose, Helen, many older workers will be grateful for the help in rebuilding their pensions as they will benefit from an employer contribution as well as their own.

Helen Morrissey: Well, yes, they will but there are complications that people do need to be aware of. There are rules around how much you can contribute to a pension every year and if you breach them, you do get hit with a tax charge. So, most people can contribute up to £40,000 per year to their pension and still receive tax relief on their contributions. However, if you have flexibly accessed your money purchase pension, this allowance is slashed to just £4,000 per year. This is what is known as the money purchase annual allowance. Lots of the people who retired during the pandemic will have accessed their pension to top up their income and they may not realise they will be hit by this lower allowance when they restart their contributions again. Of course, it’s always worth remembering that tax rules can change and benefits depend on personal circumstances.

Susannah Streeter: Yes, I mean, that can make a huge difference to how much people can pay in and if they don’t realise it, they could be hit with a pretty nasty tax bill. Isn’t that right?

Helen Morrissey: Yes, they can. The first many people will know about it is when their provider tells them they’ve breached the annual allowance and they need to repay the excess tax relief through self-assessment. So, if government really wants to really support older people back into the workforce, then we believe they need to take a closer look at how they can reform the Money Purchase Annual Allowance and help these people who are trying to do the right thing, to rebuild their retirement resilience.

Sarah Coles: One thing that has always struck me is how do people know when they have enough saved for retirement? Because so many things can happen, can’t it?

Helen Morrissey: It’s a great point Sarah and that is why the figures from the PLSA, that I mentioned earlier are so important. They have taken three retirement lifestyles – minimum, moderate and comfortable and they’ve put an annual figure against each of them. So, for instance, a minimum retirement lifestyle will only give you the basics and the PLSA estimate that will cost just over £12,000 per year for a single person. You can factor the state pension into this and that’s going to be worth over £10,600 from April so this accounts for the vast majority of it. However, if you want a retirement with a few more frills, say running a car or going abroad on holiday, then you are looking at more like £23,300 per year while a comfortable retirement with more money to spend on fun things like theatre trips and meals out will set you back just over £37,000 per year.

Susannah Streeter: Wow. There are some big numbers to aim for and, of course, during the autumn, many people nearing retirement who may have been moving into bonds could have had a pretty nasty surprise.

Helen Morrissey: Yes, people nearing retirement who have a defined contribution pension will sometimes have their money in pension investments that do what’s known as lifestyling. Now, this means they gradually move over to assets that are typically seen as less volatile, and this includes bonds. As a result, when bond prices collapse, as they did last autumn, they may have seen their pension pot fall, and this is the last thing you want so close to retirement. If they can delay retirement by working longer then this gives their income time to recover. However, those people looking to annuitise found lower bond prices caused annuity incomes to surge and so they will have got higher incomes as a result. The timing has been all important.

Sarah Coles: Thanks Helen, so there’s some swings and roundabouts there for our people with their money in bonds.

Susannah Streeter: Makes a change from rollercoasters that we’re usually talking about, doesn’t it Sarah?

Sarah Coles: Oh, very good. Very good. So, we explored the role of bonds in pensions a bit there, so let’s bring in Emma Wall now, our Head of Investment Analysis and Research, who has been talking to Steven Hay, co-manager of the Baillie Gifford Multi-Asset Income fund.

Emma Wall: Hi Steven.

Steven Hay: Hi Emma.

Emma Wall: So, we are talking today about people having to work for longer, needing income in retirement for longer, and I thought we could talk about other ways of generating income in retirement and that's through investing. Specifically, through the concept of natural yield, which sounds a bit jargony but I'm hoping that you can explain it to our listeners.

Steven Hay: Well, that's absolutely right and I think what's really important as we all live longer and hope to enjoy our retirements is that we do make our investments work harder and for longer. And that means having a collection of different assets held for a much longer period than maybe people have in the past. And what you can get from those assets is, as you say, a natural yield and really that's the income that comes directly from those assets. So, in the case of an equity, it would be the dividend that a company pays. In the case of a bond, it would be the coupon payment that it pays, that's the natural income that is generated from those assets and it saves you having to actually sell down some of your portfolio to generate income because that income is coming naturally.

Emma Wall: I thought it was interesting what you said about asset class mix and holding certain assets for longer, because typically people think about retirement as a time to de-risk, sell equities, buy bonds. Obviously, everybody's individual circumstance is different but, typically, we are living for longer now, so we're actually having riskier assets for longer makes sense, doesn't it?

Steven Hay: I think it's absolutely essential, to be honest, that we all start to think much harder about how we make our assets work as we hit that point of looking towards retirement. People have typically in the past had annuities. Now, clearly interest rates have risen a bit so they may be a little bit more attractive than they were, but they're still very low in terms of the yield on an annuity. So, that's a very costly way to generate income from retirement. So, I think we have to think much more flexibly about how we hold our assets through that retirement period and keep them working for longer so that we can keep our income growing over that period. And, importantly, to keep pace with inflation, which is a key risk if you don't invest in assets that can keep pace with inflation.

Emma Wall: And you said the dreaded ‘I’ word. I was gonna bring it up but you've nicely brought it up for me, so we can segue. Those are the theories, that's the building blocks of how to generate income in retirement. But let's think about right now because you run a multi-asset fund which does have equities and bonds and some alternatives in it. How are you investing to generate income at the moment with inflation as high as it is?

Steven Hay: So, inflation's a really key thing to think about, Emma, it can really devalue your investment and your income over time. To give you an example, if we invested everything in fixed income right now, the yield of income that we get is going to be fixed in nominal terms. So, it won't rise with inflation. So, over the years as inflation is high, that will erode the value of your income. So, for us it's really important to have a mix of assets in the portfolio and not just to have fixed income because we want to guard against that inflation risk. So, for us, in our multi-asset income fund, which we're actually going to rename shortly ‘The Sustainable Income Fund’, we have about a third in equities, a third in fixed income and about a third in what we call real assets, which would be property and infrastructure. And the point of having that mix a third, a third, a third, is really so that we can keep our income growing at least in line with inflation and our capital growing in line with inflation. So yes, we have the fixed income in there to provide a higher level of income right now, but we know that will erode over time. So, for us, it's really important that we have the equities in there and this is, I guess, the point about keeping your assets working for longer through the retirement period, keeping equities in your portfolio. And they are income generating equities but they can provide the growth of income in the portfolio. We need diversification as well to help with the resilience of the income. So, we have some property and infrastructure and these are also income producing assets, but they tend to be able to keep pace with inflation. Often, the underlying cash flows are directly or indirectly linked to inflation, so they should help to keep pace with inflation. So, if you can blend all these assets together, then you have a portfolio that can keep growing in line with inflation and provide a nice high income as well.

Emma Wall: Diversification is so important as you say, whether you are doing asset allocation yourself and building a portfolio yourself or whether you are outsourcing that to a multi-asset fund manager such as yourself, diversification really does build that resilience through a market cycle. So, at the moment we're facing volatility, economic uncertainty, higher inflation, but if all those metrics were reversed, diversification would still be important because there'd be different things driving the market, wouldn't there?

Steven Hay: Absolutely. So, we like to look ahead as investors, we like to think we can anticipate what events are going to happen, but, you know, we all know that actually as a lot of the things that happen are unforecastable. The Russian invasion of Ukraine and the impact on gas breaks, we just didn't expect that. So, it is really important to have a range of assets that can do different things in different circumstances, and we know from the historical experience that the income you get from equities can be quite volatile at times. So, we have to be aware of that. We know that during the covid period, if you held UK equities for example, there was a fall in in the income from those of about 45%. So, it was a big fall on income and I know that from talking to a lot of people I know that retired, that that was a big impact on their income through that covid period. So, you want diversification. So, if for example, you'd held global equities, and our focus is really on global rather than just UK, the global equity is only down about 12% over that period. So, a lot less. So, a lot of diversification and, actually, if you held infrastructure, our infrastructure income grew during the Covid period. So, I think it is really important because we just don't know exactly what's gonna happen to have that diversification in the portfolio.

Emma Wall: No, I know you've just said that you don't know what's going to happen and you don't have a crystal ball, but I also know that as a team and, and as a group, Baillie Gifford does think about, kind of, the likelihood of certain economic events and factors and that provides context to the investment decisions that you're making. So, what are your expectations for the remainder of 2023 and beyond when it comes to the sort of, big uncertainty that we have around inflation, economic growth and market outlook?

Steven Hay: As you say, we do spend a lot of time thinking about the different scenarios that could impact and it's really important on the fixed income side, in particular often on the equity side, when we're looking to pick companies, we are looking with a much longer time horizon. So, looking at 5 or 10 years and therefore the shorter-term influences on the market are less important and we're thinking really about a company's competitive advantage, the growth in that particular market, etc. Those are the most important things. But when we are thinking about asset allocation, we will be thinking about valuations in the market and what can do well from here. Clearly, the inflation outlook is vital or if it had been that the inflation was underpriced by the market and we've got now gone to a place where people, you know, are worried about inflation. I think it's, it's fairly priced. I think inflation will come back down again quite strongly throughout this year and into next year. I think a lot of that is, kind of, baked-in in terms of we've seen the gas prices come down already, that will feed through to the inflation number. So, we will see quite a falling inflation in the near term and maybe throughout the rest of this year. But the big question really is, beyond that, where is inflation going to settle in the medium term? And that's an area we still have some concerns about. We think the labour market, which is a key thing in driving inflation, is still really tight and really strong there aren't enough workers. It’s been well publicised every over 55 seems to have retired. There's just not enough people out there in the labour force working that helps to keep wages strong and it's hard for inflation to fall back significantly. So, I think the days of inflation being too low for the Bank of England, you know, below the inflation targets, I think those days are gone and I think we are in an inflation being a little bit higher than it used to be. Maybe not too high, maybe just in the 3-4%. Not as high as people have seen recently, but it's still a very relevant point for thinking about your asset class mix.

Emma Wall: Steven, thank you very much.

Steven Hay: Thank you.

Sarah Coles: That was Emma Wall there talking to Steven Hay, co-manager of the Baillie Gifford Multi-Asset Income fund. And please bear in mind these are the views of the fund manager and are not individual stock recommendations.

Susannah Streeter: You are listening to Switch Your Money On from Hargreaves Lansdown. And now it’s time for the stat of the week. And this week, the government published some of its research into homeworking and hybrid working. So, before the pandemic, around one in eight people worked from home. This rose to a peak in the first half of 2022 of 49%, but where do you think it has settled since? Now, Sarah, this is a figure that includes anyone who worked from home at least part of the time in the previous seven days, and I’ll accept anywhere in a broad range.

Sarah Coles: I hope that’s a very broad range because I have no idea. But, you know, always happy to give it a guess. I’m going to go for 30%.

Susannah Streeter: Well, you’re in the range, but that’s not that hard, because it has actually fluctuated between 25% and 40%, and the statisticians haven’t been able to establish yet a pattern explaining why. It seems like sometimes we want to go to the office, and sometimes we’ve just had enough of other people. And on that note, it’s all from us this time, but before we go, we need to remind you that this was recorded on 20th February 2023, 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. Past performance isn’t a guide to the future.

Susannah Streeter: This is not 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 Lee, Sophie, Helen, Steven, Emma, and our producer Elizabeth Hotson.

Susannah Streeter: Thank you so much for listening. Goodbye.