Macron’s centrist alliance was trounced by Marine Le Pen’s far-right party in the European Parliament elections. His decision to call a national election raised understandable fears about Europe’s future political direction, prompting a sell-off in risk assets that set the tone for global markets at the beginning of the week.

“It appears that Macron has thought that either he can rally a coalition to stop Le Pen, and so reaffirm his mandate and halt the momentum of National Rally in its tracks, or alternatively, should the Far Right prevail, then he hopes they will make a mess of their time in office and thus stymie Le Pen’s presidential run in 2027,” suggested Mark Dowding of BlueBay Asset Management. “However, this has a bit of a sense of a gamble, and politicians such as David Cameron in the UK might be able to tell a thing or two about how such gambles have a habit of blowing up in your face.”

On Wednesday, the European Commission announced it would impose extra duties of up to 38% on imported Chinese electric cars from July, taking the highest level of tariffs to nearly 50%. Predictably, Beijing railed against the measures as protectionist behaviour and said it would take “all necessary measures” to safeguard its interests. Chinese car exports soared by more than 50% in 2023.

Friday brought reports that Germany was trying to prevent or soften the EU tariffs, warning they could hurt global trade. The European car industry also warned against the measures. With China accounting for almost a third of German carmakers’ sales, it’s small wonder the country is seeking an amicable solution.

Tariff-induced worries, growing political uncertainties, and the hawkish noises from the Fed combined to condemn European stocks to their biggest weekly loss of the year.

In the UK, there was unwelcome news for Prime Minister Rishi Sunak as official figures showed the unemployment rate had risen to 4.4% in the three months to April, its highest level in two and a half years. This was followed by news that the UK economy failed to grow in April, as the wet weather put off shoppers and slowed down construction.

It was an awkward development given Sunak’s election pitch that the economy is improving on his watch, although he could point to other data that showed wage growth continuing to rise faster than prices. Signs of a cooling labour market are unlikely to change the Bank of England’s thinking. It is widely expected to keep interest rates on hold this month as it awaits further progress on bringing down inflation.

Turning to the US, there was a boost for markets on Wednesday with news that inflation flatlined in May, the first time since June 2023 that prices did not increase in the month. This meant the annual rate of inflation eased to 3.3%, slightly below the 3.4% expected by markets. Core inflation – which strips out volatile components such as food and energy – grew at its slowest annual pace in over three years.

The data prompted markets to price in the probability that the Fed would cut interest rates in September as well as December. However, that optimism was soon dampened. At the end of its two-day policy meeting, the Fed held interest rates steady, as expected, but said it anticipated just one rate cut at the end of the year. Chair Jerome Powell made clear that the Fed was content to leave rates where they are until the economy sends a clear signal that action was needed – through a more significant easing in inflation or a jump in the unemployment rate.

His comments indicated that policymakers have accepted a slow expected decline in inflation back to its 2% target.

Despite this, the S&P 500 closed the day at a fresh record high, having leapt 14% so far this year, as the encouraging inflation data kept alive hopes of a soft landing for the US economy – in which the Fed is able to tame inflation and eventually cut interest rates while growth remains resilient.

Planning your retirement income can seem daunting, especially if you’ve managed to save or invest in a range of different assets over the decades. For most of us though, the first thing to consider – your baseline – will be your pension.

The good news is that generally the first 25% of what you draw from a Defined Contribution pension is tax-free.

But after that you’ll be taxed at your marginal rate of income tax. So, what other options do you have to fund the retirement you’ve been planning?

If you have money saved in ISAs, you won’t pay Income Tax or Capital Gains Tax on any amount you withdraw.

Will I pay tax on my pensions?

The short answer is yes, you’ll pay tax on your pension income – State, Defined Contribution or Defined Benefit – if the amount of pension income received adds up to more than your Personal allowance of £12,570 for the 2024/25 tax year.

Will I always pay tax on my pension, no matter what type I’ve got?

If your annual pension income, plus any other income you receive from savings, or part time work, is less that your £12,570 Personal Allowance, you will not pay income tax.

What if I’ve got different types of pensions?

If you know that you’re going to have a combination of Defined Contribution pension (DC) and a Defined Benefit (DB) pension, proper financial advice really is key.

Will I pay tax on any other retirement income?

If you have income from more than one source, you’ll need to declare this clearly on your tax return – so you pay the right amount of tax against each income. Your Personal Allowance will normally first be applied to your pension or employment income if you’re still working.

Look out – Emergency Tax hazard ahead.

Since the 2015 pension reforms, generally Emergency Tax is applied to initial payments from pension schemes, if you’re taking a large taxable amount then this could mean that you’ll pay a significant amount of too much tax. Emergency Tax is temporary – until HMRC works out what tax code you should be on.

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