My whole pension is in CASH not shares

Radio broadcaster Paul Lewis keeps his entire pension in cash and has done so for nearly a decade. 

The award-winning financial journalist and presenter of Money Box on Radio 4 tells Donna Ferguson he doesn’t invest in stocks and shares and would never consider becoming a buy-to-let landlord.

If he were Chancellor, he would unfreeze income tax allowances, but raise Capital Gains Tax. 

Now 75, he has three adult children and lives with his wife Emma, mortgage-free, in a three-bedroom house by the Thames in West London.

What did your parents teach you about money?

They taught me there’s nothing wrong with borrowing money as long as you can pay it back. You have to work out what you can spend and what you can afford. These were lessons that have lived with me forever.

I am the youngest of three children, and my parents earned modest incomes and didn’t have a great deal of money. They were both teachers – my father taught maths at a secondary school, and my mother went from house to house, teaching children with learning disabilities.

Although I imagine they had more money stress than they let on, they were never secretive about money. They talked about how much things cost, how they managed their money, and the fact that they had borrowed to buy their house. They were never afraid to talk to me about money.

Have you ever struggled to make ends meet?

No, I wouldn’t say I ever struggled. But when I was in my early-30s, married with three children, I used to work for a charity in an information management role and I wasn’t very well paid. I’d always spend a bit more every month than I had. Then I’d get paid, and my overdraft would disappear.

Thanks to the lessons my parents taught me, I was very conscious that I had a finite amount of money, and I never got into serious debt. And whenever I have needed more money, my approach in life has been to do a bit more work.

So I started doing some freelance writing in the evenings and at weekends.

What was the best year of your financial life?

The year when I went fully freelance in 1986 was the best year. If you have one employer, you can always be sacked. If you’re freelance and have four or five people who pay you, then if one of them suddenly starts hating you, it doesn’t matter.

What is the most expensive thing you have ever bought for fun?

A lovely painting of a fisherman gazing out to sea as the sun rises by William Collins, father of the Victorian author Wilkie Collins, who wrote The Woman In White and The Moonstone. I’ve studied Wilkie Collins – editing and publishing his letters. He refers to this painting in a biography he wrote of his father, and it was bought by the Prime Minister at the time, Lord Liverpool. I was very fortunate to be able to buy it at auction – I won’t say for how much, but it wasn’t a huge amount. It’s not a Picasso.

What is your biggest money mistake?

Taking out an endowment mortgage. It didn’t lead to any real difficulties, but it certainly didn’t perform as it should have done.

The best money decision you have made?

There are two. The first was buying a house to live in after I got married, because it gives you security. The second was paying into a pension when I was in my 20s, because it is important to start doing that as young as you can. I got some of my early employers, which were charities, to start a pension scheme, which is money I now draw on. 

I remember house prices rose substantially when I was thinking about buying a home. I thought, ‘This is ridiculous; I’ll never be able to afford a house.’ But I managed it when my wife was expecting our first child. We bought a three-storey terrace house in Maidstone, Kent, and I still remember how much we paid for it in the mid-70s: £9,350.

Do you still save into a pension?

Not now I’m 75. I had been paying a lot into a pension over the last few years, but you don’t get tax relief after 75. I’m still working, so I’m not taking any money out of that pension. When I retire, I’ll have to spend it fairly quickly, because I probably won’t retire until I’m nearly dead. I’m very lucky that I can carry on working and enjoy what I do. 

But most people aren’t in that position and they would like to have money when they’re older, and saving into a pension is the best way to do that. I wouldn’t buy a property as a pension, as I would never consider becoming a landlord. For everyone who owns two properties, there’s someone who owns none and is having to pay rent. They are working until Tuesday night or Wednesday lunchtime every week and giving you, if you’re the landlord, the money. Is that really how you want to live?

Do you own any property?

Yes, I own my home near the Thames in West London. It’s a fairly small three-bed terrace house, which I bought more than 20 years ago. I have paid off the mortgage and own it outright.

Do you invest directly in the stock market?

No – my pension is all in cash and has been for about a decade. I actively manage my cash, so every year, I look where my cash is, find the best one-year bond and move my cash there. I recently put nearly all of it into a one-year National Savings & Investment Bond, because it will earn 6.2 per cent. There is no investment anywhere that will earn me that rate guaranteed and my capital isn’t at risk.

Many people have seen the value of their pensions fall by 20 per cent in the past year. Mine hasn’t. It’s grown. People also worry about the impact of inflation on cash. But inflation affects the value of investments just as much as it impacts cash. I did an analysis a few years ago and found that in the very long term – over 20 years – tracker funds will beat cash, but over shorter periods, they often won’t. 

About a decade ago, I decided I didn’t have 20 years ahead of me to pay into my pension, so I would just keep it in cash. I use a fairly small (Sipp) provider because most of the big Sipp providers won’t even let you keep your money in cash. 

If you were Chancellor, what’s the first thing you would do?

I would unfreeze income tax allowances. They will cost taxpayers nearly £40 billion a year by 2028. It really is a stealth tax. Wages are rising at more than eight per cent a year, but as people earn more money, more of it is going in tax because the tax allowances are not going up with inflation. 

They know they don’t feel much better off, but they don’t know why. I’d find that tax money elsewhere. Unearned income is taxed far more lightly than earned, so I would start taxing capital gains at the full tax rate.

Do you donate money to charity?

I give to charities concerned with homelessness and, since the NHS saved the sight in one of my eyes, I give money to Sightsavers, too.

What is your number one financial priority?

To keep working. That gives me money to do what I want and to indulge myself – when we go on holiday, we stay in four or five-star hotels. I’m fortunate I don’t have to worry about my bills.

• Paul Lewis’s book, Money Box, is a guide to money in your life from ages 0 to 99. See penguin.co.uk.