Bond yield warning signs and Nvidia’s $100 billion forecast

0:00Hi, I'm Charlene Young and welcome back to the 8A Bell and Money and Markets podcast after our summer break. Joining me on the show this week is Tom Sibba, hi Tom. Hi Charlene and hi to everyone listening at home. I hope you had a good summer. I did, thank you. I did. It feels like, I don't know. First of September and the skies are grey and rainy again in Manchester. I know. Yeah, we operate on a different timeline out here in Scotland. So the kids have been back at school for a few weeks already. Of course, yeah. Just with the money saving hat on, we spent the first week of the holes in centre-parks, but sensibly we picked notting them rather than the one in Cumbria and that meant we avoided the peak prices, although there were a lot of other Scottish accents there,

1:00because I think a lot of people would be in the same. The same idea. Oh, well, I don't know. The only dates my husband and I could match for leave were right in the middle of August, not that long ago. So I spent pretty much all of my holiday budget for the entire year on those 12 night in Crete, which was great, but pretty much the exact opposite of your good, sad, spending skills. We were lucky. We were lucky. I should sort of come back to the top of that. So this week we're going to be talking about last week's crunch earnings from Nvidia. We're going to be talking about why government bond yields are starting to surge again, the change of chair at BP and how she has got off to a pretty sticky start on the stock market. Yeah, I'll be chatting about why the housing market is looking a little shaky and why it's important to check you're getting the pension tax relief, your owed on what you pay in. We'll also be digging through the capital gains tax data, checking what trends it reveals as receipts of hit record levels. Plus, our very own Hannah Willeford talks to Rob Perone from all this investments about

2:02the latest developments in the bond market. Before we hear Rob's thoughts though, Tom, could you talk about what has been a very volatile time for markets in general and bond markets in particular? Yeah, so Rob and Hannah will cover all of this in a lot more depth in the interview that we've got coming up. But just for a bit of context, I think bond yields have been dominating the market discourse for at least the last few weeks, actually, so coinciding with the period that we've been asked, I don't know, presumably that's purely coincidence. Just as a quick reminder, bonds are IOUs issued by government companies, other institutions that pay a fixed rate of income and then they return the sum that you've effectively lent them at the point at which they mature. And this big increase in yields and government bonds follows a renewed surge in oil prices as we've seen the hostilities between the US and around pub again.

3:03There was a period last week where yields have come back down a bit partly because oil prices have come down. But the vague hopes of some diplomatic progress in the Middle East haven't really amounted to anything. But we've seen a kind of, as I said, we've seen hostilities pick up again. So that's taken up all prices higher, that's seen yields move higher. And then on top of that, we had some comments from the Federal Reserve Chair Kevin Moosh at the Jackson Hole. Symposium or kind of, it's basically a bit get together for central bankers and politicians. And that, the comments that you made have kind of increased expectations for a rate hike in the US in the short term. So the yield on a bond rises when the price falls. And like most assets, the price is a function of supply and demand. And government bonds are just in less demand thanks to the sheer scale of borrowings. There's a lot of government debt out there. We recently saw the US National debt tick over 40 trillion deficits are rising.

4:03So that's the shortfall between the amount of country spends and how much it brings in in revenue. And as we said, we've got this Middle East crisis and that's increasing concerns about inflation. And when inflation increases, it's bad news for bonds because mostly they offer a fixed rate of return. And the value of that return is then kind of eroded by rising prices. And these factors have been compounded by the fact that central banks are buying less government bonds as well. So on top of that, as governments are having to issue more debt to fund their spending. And when bond yields go up, it's a headache for governments because the cost of their cost of borrowing goes up as they're trying to fund public services and their other spending. But it's also usually bad news for the stock market. There's two key reasons for that. One is they increase the cost of a company's own borrowings and that is their profitability. But the other is that when yields on low perceived low risk government bonds are higher, they

5:07compare more favorably with investing in the stock market which is considered to be higher risk. So it's not necessarily a good thing for the stock market. We haven't seen a big sell-off in stocks just yet. And we might not transpire. But it has led to a bit of selling and a bit of nervousness in the markets. But that's probably enough from me. Let's hear more from Hannah and Rob from Orvis about what's been happening with bond yields and why. Well, we have Rob Perron on from Orbus today. Welcome Rob, how are you doing? Yeah, I'm doing very well. It's good to be with you, Heather. Thanks so much. We've got a lot to talk about today. It's been a pretty big weekend for bond markets. So as of Tuesday morning, the UK tenure-gilt has hit. It's high as when 18 years. And we've also got highs for US treasuries since I believe sometime in 2025.

6:15So can you talk a little bit about two big things that happened this weekend, which was the Jackson wholesome prosium and a bit of renewed conflict in Iran. Tell me how those link to these movements in government bond markets. Sure. So let me start with Iran because I think the way that my answer there will be shorter. The main way that they are in conflict influences the global bond market is through its impact on oil, oil flows, and so oil prices. And oil prices are a major component in inflation. They flow through to all sorts of things. And so when things happen in the world that make the market believe oil prices will be higher for longer, generally the markets expectations for inflation come up. Now that usually leads people to demand compensation. You're getting a fixed rate of interest on a bond. If inflation is waddling that away, well, you need a higher yield to compensate for that.

7:16And so it can affect the bond market through inflation expectations. It can also affect the bond market because investors will say, hey, higher inflation is coming down the pipe. Central banks are going to have to raise interest rates. And so you can see interest rate expectations rise as well. But I think the relationship between Iran and the bond market is pretty volatile, right? Depends a lot on what the oil prices do in week to week. And the headlines vary from one week to the next, right? And so I think over longer horizons, the Iran was likely to be a less big deal for the bond market, important in the short term. Jackson Hall, totally different story, right? Totally different story. And if you indulge me, if I can give a little bit of history here on why Jackson Hall was interesting to nerds like me, right? You care about the Fed. Please. Yeah. So back in the day, roll back to the era of the late 1990s, Alan Greenspan, central bankers didn't say much. They would say interest rates. And then they would kind of speak in jargon and know and really knew what they were saying.

8:19And that's how they operated. And then the financial crisis happened. And they cut rates all the way to zero. But economies were still struggling. And so they said, hey, how can we convince the market that we're going to keep rates low for a long time? And under Bernanke in the US, and a lot of the similar things happened globally, they said, why don't we just tell the market? We'll just give the market more guidance about what we expect to do. And they did that throughout the GFC. And then that continued in the US under chairs, Yellen, and then Powell. Now this year we got a new Fed chair, Kevin Worsh. And he had been an outspoken critic of the Fed on a couple of dimensions. And one of them was communication. His belief coming in was central bankers are saying way too much. And the market is getting way too dependent on trying to guess what the central bankers are going to do next. And so you get these weird things, right? You get bad economic news and the stock market goes up because everyone says, oh, great,

9:20the Fed's going to cut. That's not how really how markets should intuitively work. And since becoming chair, Worsh has said very, very little, right? And has very first press conference in June, he declined to submit forecasts to the Fed's quarterly summary of projections. He introduced five task forces, which are going to kind of shake things up, evaluate how the Fed does their work, one of those on communication. But otherwise, he said very little, right? Said very little about his view of the economy, very little about financial conditions, what he expects to do with interest rates. In July, July Fed meaning he said even less, right? He went out of his way to say nothing. And he frustrated all of the journalists in the room and most of the financial community. And he created a lot of confusion. He confused people on inflation. He said, oh, 2% is the target, but I don't want to give away my hand. The task force might have more to say about this in January. I look at a wider range of things.

10:21So people are left thinking, is this guy committed to 2% or not? He observed that long-term bond yields had risen and sort of pointed that to say, the bond markets doing work for us. And that created confusion. He views interest rates as the main tool. And he had this incredibly confusing analogy of, oh, well, if I say less, the market will learn to play the ball, not the referee. But that's a little bit like Shaquille O'Neill stepping onto a basketball court and saying, hey, guys, don't worry about me, right? It's hard to ignore him. He's a big guy. And so all to say, the bond market was not very happy with Warch coming into Jackson Hall, which is the Fed's annual conference. Bond yields had risen a lot since June. So getting up to about 4.8% on the 10 year, about 5.3% on the 30 year. And then we rolled to Jackson Hall Thursday Friday. So first, he kind of acknowledged that people were unhappy with his communication style. He cleared up inflation, confusion around inflation.

11:22He said, yep, 2% is the target. That's what I'm focused on. He cleared up inflation about interest rates being their central tool. I'm not really learning how others to do our work for us. And then he did a number of things that he has resisted doing so far. He gave his assessment of the economic environment. He said, a employment, that's one half of the Fed's mandate. Employment looks pretty good. Activity is healthy, but inflation's too high. He said our focus should be on inflation right now. First time he said that. He gave his assessment of financial conditions. He said he would be hard pressed to describe financial conditions as restrictive. Well, that's pretty interesting. He's not said that before either. And then he finished by saying, let me give you my standard. I'm going to read here. We must be confident that inflation is moving to our objective clearly and at sufficient speed. Otherwise, we have work to do. Now you take those three things together. It is a pretty big hint that the Fed is looking to raise interest rates in the near term.

12:26So that's a big departure from the way Worsh was communicating previously. What should investors take away from this? Because I think from a lot of investors' perspectives, they look at a yield about 5% and say, that seems like quite a good deal. What do they need to know about what kind of lies behind that level of yield and what are the risks then? Yeah, I think that's a wonderful question. I think I've got a little chart I like to refer to internally. I just say, what's in a treasure yield? What's in a bond yield? And then you build it up. So some part of that will be inflation. Bond holders need compensation for inflation. Some part of that will be, what does the market think real interest rates? So after inflation, interest rates will be. And some component of that is, what's the natural rate of interest? Imagine a world where you didn't have central banks setting rates. How would rates get set?

13:26And it would be the balance of savings versus investment in the economy. In cases where there's a lot of savings and not very much investment, yields can be low. In environments where there's a lot of investment and somewhat less savings, yields should be higher. And I think a big, possibly the biggest driver of rising yields recently has been around this. Here in an investment boom, straight up investment boom with AI and data centers. And they just have this voracious hunger for capital. And so there is equity, they're raising debt, they're issuing corporate bonds. You know, the economy is saying the balance of savings and investment has tilted towards investment. Well, if you want to attract more capital so that you can go invest, you have to offer higher interest, higher rewards to that capital. I think that's been a really big driver. And by and large, that's not something that central banks control. And then the last piece, a really important one, would be what bond nerds call the term

14:29premium. This is the extra return you get from making one long loan rather than a series of short months. Because you lock up your money for a long time, you give away optionality, right? There's a cost to that. And the term premium tends to creep up when people are more uncertain about inflation. I think absolutely that's been the case, especially with our rent. And it creeps up when people are worried about government finances. Because they say, hey, what are yields going to be in five years, 10 years time? I'm buying a 10 year loan here, right? Yeah, it is quite, it's quite an interesting scenario of, you know, these yields are higher, but also in the US, in the UK, there's quite a lot of borrowing going on. What risks sit with that? And what kind of term, you know, is this a long term risk? Is this something people need to be worried about quite soon? Yeah, I think the interesting thing is that the timing depends on confidence, which is

15:32fuzzy, you know, the whole artifice rests on confidence. And when confidence is lost, you can end up in a crisis and I hurry. And I think it wouldn't surprise me at all if we start to see American discussions about government spending, about government debt, start to sound a lot more British, right? We're all used to over here. You get once or twice a year, the budget statement, you get the red briefcase, and then everyone goes and looks at sterling and it guilt yields to see how the bond market's taking it. It wouldn't surprise me at all if we see that same thing playing on the US. And my last question for you here is, as we move forward into September, what are the main things that you're looking out for? What are the next things on the diary that you've marked that says this could, you know, give us a little more gut in further bond market? Yeah, I think the, I think everyone who's a Fed watcher is very interested to see what

16:33Kevin Worsh's five task forces come up with and they're due to report back probably around the end of the year. That'll be interesting. There's all sorts of interesting things going on at the US Treasury. You know, they did this intervention in the end. They went off schedule and did a surprise announcement of larger Treasury buybacks. But I think a lot of this stuff, interesting as it is to bond nerds, is secondary to what's going on with AI. I think the AI build out is the dominant force right now in stock markets. It's driving wealth effect, which is keeping consumers spending and it's driving this incredible demand, this incredible thirst for capital, which is seeing interest rates and bond yields rise everywhere because they have more competition. You know, it's pretty unusual to have people demanding much more capital when they are already established in profitable businesses. And so, you know, roll back a couple of years.

17:34If you wanted a safe way to get your money from here to 2030, governments are probably your best bet. Now, they have more competition because you could buy a bond from alphabet instead and that's probably a pretty good credit. And so I think the AI build out is probably the most important force right now in the equity market and in direct and indirect ways in the bond market. That was Hannah with Rob Perone from Orbis, thanks to Rob for coming on the show. Now, that concludes our mini segment on the bond market. But what else has been going on in markets more generally recently? We were on our hiatus, our summer break last week when Nvidia reported. So what did that reveal? Yeah, so Nvidia beat forecast, but that in itself is not really news. It's beaten revenue forecast for some 16 quarters in a row. I think what was more significant was that the scale of the beat.

18:34So the company and these numbers just keep getting bigger and bigger. It feels like, but it was forecast to deliver 91.9 billion dollars of revenue. And it actually managed to generate 96.2 billion dollars worth and for the second quarter. And significantly, I think it, you know, because the market is forward looking, it's more about what companies are going to do next. It's third quarter and it's longer term forecast. So we're better than what people have expected. So for the third quarter, the company is projecting that it'll actually hit $108 billion worth of revenue. So that'd be the first time it's quarterly revenue had gone above $100 billion. Just for a bit of context, did some kind of back of an envelope calculations. That is about $1.2 billion a day or $50 million an hour. Yeah, nice working for you there. And they're guiding for 70% revenue growth in the 2028 fiscal year as well.

19:38So there's little sign of any demands kind of abating at this point. Earnings per share for the second quarter came in at $2.22 against the $2.08, which had been penciled in. And just a quick side note, I think it's worth remembering that Nvidia doesn't just do AI chips. It's history is in kind of making chips for video games. And it still chalked up a pretty healthy $7.2 billion from this space in the culture as well. That's all like big numbers there, all very positive. In that report, was there anything kind of hidden in there for investors to worry about? Yeah, nothing major and certainly the market reaction was positive to the numbers. There was just one thing that perhaps people will be keeping an eye on, which is something called accounts receivable. So it's kind of an accounting term. It's risen 64% over the last six months to $63 billion.

20:40What that's showing is it's basically the money that customers still owe, sorry, for goods and services that they bought on credit. So that could mean one of sort of two things really, either that they're taking a bit longer to pay, or that Nvidia is selling more products on credit. So that potentially could store up some problems in the future. And I think it is notable that Nvidia, despite having a bit of a bump last week, it's still trading quite close to its lowest valuation levels in some time. That doesn't mean the share price hasn't continued to go up. It has, but it hasn't gone up as fast as kind of earnings are projected to. And that probably does reflect that there is still some of this kind of lingering concern about just how sustainable the levels of AI spending that we've seen are. And in other news, there's also a new chair at BP after the previous incumbent left under quite a cloud earlier this year. So what do we know about this new appointment?

21:41Yeah, so it's not an unfamiliar name in the sense that the guy who's become the now permanent chair was the interim chair. So a guy called Ian Tyler, who had been kind of filling that role since May. As you say, his breed assessor Albert Manifold, who'd come from a big construction company called CRH. And had kind of left under a bit of a cloud with kind of allegations of bullying. And so it was all a bit messy for BP. And it's BP is a company that's had kind of probably more than its fair share of difficult times in recent years. So it wasn't helpful to have that. And I think you can sort of see why they might have gone for a bit more of a known quantity because of that. This guy has been on the board at BP for about 18 months. He's obviously served as an interim chair for quite a while. So they know what they're getting. He's fairly experienced as well. He's been around the block. He was the boss of Balfour B.C.

22:41in the Noughties in early 2010s. And he's currently the chair of construction company called Grafton. And he's on the board of Anglo-Americans, a big mining company. BP has said sort of to address fears he might be wearing sort of one to many hats. Some suggested to review some of these external commitments. So you probably see him kind of pull back from at least one of two of those. I suppose the only kind of risk is that he's seen as too conservative of BP because a big factor in bringing manifold in in the first place was to kind of shake things up a bit because the business had gone, of course, you know, this kind of big green strategy hadn't really worked out. It lost kind of credibility with the market. But if you look at the market reaction, you know, it hasn't really kind of sparked too much excitement or too much up to eat. It's kind of been greeted with a bit of a shrug. And that might not be a bad thing. I mean, the CEO, Meg O'Neill's only actually been at the business for a few months

23:42herself. She started in April. And you know, a bit of kind of quiet around the business while she tries to put a stamp on it would probably be quite helpful, I think. Yeah, makes sense. I mean, from one big name to another big name, which is now a new stop market name. And that's Budget Clothes website, Sheen, because that has completed its IPO in Hong Kong now. How did that all go? Obviously, it's been a year of some big name IPOs. How does this compare? Probably not that favourite thing to be on. I mean, appropriately enough for a business that sells, kind of, budget items. The IPO was already kind of a cut price IPO. Oh, right. Okay. Because, you know, Sheen has been trying to list on the stop market for quite a while. It looked at listing in the US and the UK as well. Didn't happen, got kind of stuck with regulatory issues and concerns among investors about kind of ESG issues as well.

24:44So the kind of 27 billion dollar valuation that it listed at in Hong Kong was below a kind of 100 billion dollar peak value in 2022 as a private company. And it's not really got any better from there, unfortunately. So despite apparently kind of listing at a bit of a discount, the shares fell 10% on their first day of trading and have continued to fall a bit since then too. So why do you think Sheen is struggling to win over investors? Like you say, I do remember now, you say that 100 billion dollar peak. Yeah. From a while ago, that's quite a cut, isn't it? Yeah, it is. I mean, I think, you know, the world itself has changed quite a lot in that time. So, you know, four years ago, if we think back, you know, Sheen was still riding the e-commerce boom that we've seen since the pandemic. But we've had, you know, inflation come back as a big thing. Yeah, that puts pressure on consumers ability to spend. We've seen kind of shifting habits amongst consumers as well. They're not necessarily, I mean, you know, there will still be an audience, I think,

25:47for kind of cheap clothes. But this kind of fast fashion idea and people kind of treating clothes as quite disposable, it is maybe kind of moved on a little bit. You've got alternatives like shopping on vintage for kind of pre-loved or pre-owned items as well. So I think that that doesn't help. And then you've had tariffs obviously, which I've kind of played have at careerly with trying to kind of export particularly to the US. And I think, you know, there's still, despite, you know, the fact that they've got this listing away in Hong Kong, there's still sort of concern about investors or certain investors anyway about kind of ESG and, you know, that it's kind of business practices and how it kind of has such cheap items on it. It's website, you kind of feel like that raises some questions in itself. And, you know, the quality of the items that they sell as well, I think that's concern around that. So, yeah, I think there's been a number of factors, but it certainly hasn't been, you know, kind of the IPO they were probably thinking about, you know, even a year ago or a couple of years ago.

26:49And they've got quite a lot to prove, I think. So, moving on from cut price clothing to, I guess, cut price homes, there's been some less than positive news on the property market recently, Charlene, can you, can you fill us in? Yeah. So, according to some figures from nationwide, I'll start with the kind of the rise, if you like. So, average price is rose, but just by 1.6% in that year to August. So, average price is now standing just over 275,000 pounds. According to these figures, however, since April, if you're looking at the average non-seasonally adjusted price, that is down by 3,415 pounds. And really, the climate looks pretty challenging for the autumn period too. And, you know, while prices actually remain close to kind of record highs, if you like, that actually puts them under pressure themselves, particularly as we've seen, mortgage rates start to creep up. And, you know, we've talked about it on the show already,

27:52global instability, volatile oil prices, all those things that stoke fears of rising inflation, and of course, higher interest rates. That all gets priced into the mortgage market, particularly for fixed-term rates. And that actually forces some people, some buyers to really kind of put their plans on hold as well. And, yeah, it's not looking gray out there. No, and I mean, on the kind of mortgage market, you know, we've had some data from the Bank of England, which suggests there's been a bit of kind of lull in mortgage approvals, which I guess doesn't bow that well. It's a bit of a kind of a leading indicator, if you like, a spas of what the market looked like going forward. It is. So, this is the Bank of England's money and credit release that commens out every month. So, it's a bit more frequent, and that covers this one covers the month of July. So, it's a whole host of data tells us how much is actually deposited into different types of cash accounts, including cashisers, which we've talked about before, but also, as you say, key trends and kind of lending. And the figures show that that kind of traditional holiday lull has dragged

28:57mortgage approvals lower. So, approvals fell from just over 58,000 in June to 56,100 in July. And that is running below an average of around 60,800 over the previous six months as well. Again, kind of showing that things aren't exactly building well for the property market in coming months. We mentioned it doesn't help that mortgage rates have been rising, and they did in July, the conflict in a run, of course, and volatile oil prices more of that same theme. You know, that average rate on new mortgages did increase from 4.35% in June to 4.45% in July. And, you know, all that kind of piles into the fact that it's not much of a surprise that buyers and sellers might not be in much of a hurry. So, let's see whether on the approval side, we get a traditional kind of awesome pickup or whether that kind of sluggishness is due to stay. That was a little positive maybe looking in the bloom, like to end on a high note, you know,

30:01wage rises are at pacing house prices, and that helps people in terms of affordability. And I suppose it is worth pointing out, you know, whilst those rates and mortgages are moving higher, there's still a long way off, some of the horrors that we saw back in 2022 and 2023. So, again, like most things, a lot of what might happen really does depend on what is going on in the wider world. You know, ideally we'd like to see more stability, right? And that would encourage buyers and sellers to really get kind of stuck back in, but it, and we might see prices rise again, you know, high-surprise rise again as we get that kind of period that's a little bit busier, but I feel like instability, expectations, all of that, it's become such a fixture of what's going on in the world, what we talk about on the show, I'm not quite sure we can see where alarm, then can't see some calm kind of returning anytime soon. No, unfortunately not, although I applaud the attempt to find a little sort of chink of what's happening. So, mortgages is obviously one of most people's

31:04most significant outgoing, if they own their own home, but often becomes behind-tax. And this week we've had news of the largest capital gains tax receipts on record, I think they hit some 24.2 billion. What else could we sort of take away from the data? Yeah, so these figures, it's worth pointing out, they kind of always lag a bit. So, we're talking about the tax year 2024-25 here. Yeah. As you said, the receipts for that year were 89% to that kind of whopping 24.2 billion. We're talking a lot of billions on the show today. And the number of people paying capital gains tax or so short, by 45% actually. So, that is now in 584,000 people. C-D-T perhaps gone from being a tax that you think relatively few people needed to kind of worry about. Actually, something more mainstream, catching kind of smaller retail investors. And, you know, the fact that the number of people paying C-D-T was up, but it's actually

32:05more than doubled in the last five years before this data. So, what's behind this? Well, all kind of off the back of the annual C-D-T allowance. So, that annual exempt amount to give it is kind of technical name being cut from six thousand pounds to three thousand pounds in that 2024-25 tax year, creating like them, catching like I say, a greater number of those investors. I just feel like quite a long time ago now thinking about that, I think. But, you know, really did impact kind of people's behavior. And another thing that obviously impacted behavior and perhaps brought forward some of these gains and tax bills was the worry that we saw around the autumn 2024 budget, that first Rachel Reeves budget. And that definitely kind of worried investors into realizing gains ahead of that speech where they could. So, many people might have sold assets that they would have otherwise kind of sold gradually, perhaps, or held on to taking advantage of the annual exempt amount, but they were worried about what was going to happen. And to be honest, that budget did

33:06bring pretty bad news for investors realizing gains. As we know, those making investment gains, excluding property rate, the rate rose from 10% to 18% for basic rate tax payers, are that gain still sits in that band or up from 20 to 24% for higher rate tax payers. And that was overnight. You know, there were changes also to the rate that you pay when you sell a qualifying business asset. So, what's called business asset disposal relief listens and viewers might have known it in the past called entrepreneurs relief. So, that really did force where they could some business owners who were already thinking about a sale to perhaps fast track it during the year. And actually nearly 10% of all capital gains tax revenue came from sales that qualified for that rate. There was some other interesting bits and bubs in there. It was the first year that gains from crypto were recorded separately and a 17,600 people reported gains of over 1.38 million. So,

34:06I thought that was quite an interesting. Yeah, 100% of them are really interesting. Now pensions or key feature pensions is that they offer some very attractive tax perks, but not everyone is benefiting to the sort of extent that they should. Charlene, can you explain a bit more on that? Yeah, this isn't this isn't an issue that's been rumbling on for for quite a few years now. So, I'll try and kind of explain it as succinctly as I can. So, the government last week confirmed that it will finally start paying people on low incomes or low earners the tax relief that they're due from the 2024-25 tax year again over the coming months until early next year. Now, this all hearts back to something called the kind of net pay on anomaly or the low earners anomaly. The government first kind of a night, so it was going to address this back in November 2021. So, what is this? It's a long standing issue where low earners who are paying into a pension scheme that operates tax relief on what we call a net pay basis actually get less tax relief

35:10than those paying into different types of schemes such as SIPS that offer something called relief at source. So, a net pay scheme works by deducting your own pension contributions before income tax. So, the way you get tax relief is for most taxpayers is that you get the correct amount because the money comes out before you pay income tax from the rest of your earnings, for example. However, if you earn less than the personal allowance, you don't pay income tax and therefore, you're not actually getting any pension tax relief this way. So, if you contrast that with a SIPP, for example, or a ready-made pension that operates what we call relief at source, what do you pay in? You automatically get the basic rate tax relief on that, so that 20% tax relief added directly into the scheme. So, the same amount kind of goes in on a gross basis overall, but it's actually costing those people paying into a SIPP a bit less than those in net pay. But there's also a chance that

36:11those paying income tax higher rates under SIPS, so on the other side of the coin on the relief at source side, actually miss out on some extra tax relief that they do because that part needs to be claimed directly because it's not coming off their wages first, they're not getting the extra tax relief. So, under the net pay anomaly, what we're talking about if you know or you are someone who fits into that lower in a group, that you don't have to contact HMOS, that is going to sort it out for eligible individuals directly. And actually around 1 million people could benefit with an average annual payment according to the government of 70 pounds a year. So, that will come through automatically, but I think it's good to kind of highlight the side, you know, we talk about a lot, but make sure you're claiming the tax relief you're owed. So, if you are someone who pays tax at the higher rate, then the basic rate of 20%, and you are paying to SIPP or another scheme that operates this kind of relief at source method, make sure you're making this extra claim online with HMRC. And I will say the same amount gross does go into your pension overall, but the

37:13extra tax relief you can claim this way is paid to you either as a refund, adjustment to your tax code or it reduces your bill elsewhere. Anyone who files self-assessment can claim that way as well. So, it's just kind of highlight, there's been a lot in the news about this particular other issue, but let's just remember when it comes to SIPP's and ready-made pensions, there might be more to come back to you. Yeah, I think that's always a really useful thing to remind people about, isn't it? That is everything from us this week. Don't miss next week's podcast where Charlene will be joined by Danny Houston, and we've got a really exciting interview lined up next week too. And I'll also be making a swift return to the podcast to discuss the latest issue of shares magazine. A bit of Arnold Schwarzenegger vibes there, I'll be back. Sorry, I just say what comes into my mind, but before we go, we also wanted to highlight a podcast that Tom and I are recording next week. Alongside our very own Rachel Vey, AJ Bell's head of public policy and the podcast resident

38:15pensions corner expert, we are going to answer your burning questions on pensions. Obviously a subject will race close to my heart too, but we can't answer those questions if you do not send them in. So if you do want to ask us a question, please drop us a line and the email address is podcast at ajbel.co.uk. Thanks for joining us again this week, and if you enjoy the podcast, please consider giving us a writing or review wherever you listen as it helps more people to find us. This podcast is for educational purposes, and the views expressed don't necessarily reflect those of AJ Bell. The podcast isn't telling you if a certain investment is suitable or not. The value of investments can change, and you can lose money as well as make it. It's also important to remember that how your tax will depend on your individual circumstances and rules can change. The way an investment performed in the past may not be the same as how it behaves in the future. If you want help, go see a qualified financial advisor.