WEBVTT - Why Workplace Pensions Matter So Much 0:00:01.560 --> 0:00:03.750 Hey, hey, it's Kia and you're listening to A Little 0:00:03.750 --> 0:00:06.269 Bit Richer. Pensions - we all know it's good to save 0:00:06.269 --> 0:00:08.940 into one, but it's so tempting to put it off until 0:00:08.940 --> 0:00:11.908 retirement's closer. It's understandable, but if you're wanting to get A 0:00:11.969 --> 0:00:14.280 Little Bit Richer, you've got to think about your long-term 0:00:14.610 --> 0:00:18.000 financial journey too. Let's get into this more. Today, I'm 0:00:18.000 --> 0:00:22.020 talking to Kim Brown, Legal & General's Pension Scheme Director. She's 0:00:22.020 --> 0:00:24.988 going to explain more about workplace pensions. But just before 0:00:24.989 --> 0:00:27.269 we get into this, it's worth saying that you're likely 0:00:27.270 --> 0:00:29.550 to have a workplace pension if you're working for a company. 0:00:30.330 --> 0:00:32.069 If you're working for yourself, you can save into a 0:00:32.070 --> 0:00:35.699 personal pension and we'll cover this topic in a later episode. Okay, Kim, 0:00:35.820 --> 0:00:38.339 let's break it down. What's the difference between a state 0:00:38.340 --> 0:00:40.979 pension and your own pension savings, and why is it 0:00:40.979 --> 0:00:41.790 important to have both? 0:00:41.850 --> 0:00:44.250 So the state pension's paid for by the government when 0:00:44.250 --> 0:00:48.780 you reach, currently, age 66. Research we've done on 22 to 32 0:00:48.780 --> 0:00:52.229 year old shows that 22% of that group are looking 0:00:52.229 --> 0:00:55.289 to rely solely on their state pension at retirement. Now, 0:00:55.289 --> 0:00:58.320 the state pension is 10, 000 pounds a year, provided you've 0:00:58.320 --> 0:01:01.560 had 35 years or more in national insurance contributions. So 0:01:01.590 --> 0:01:04.619 provided you're willing to wait until age 66 to start 0:01:04.709 --> 0:01:07.109 and provided 10, 000 sounds enough for you to live on, 0:01:07.559 --> 0:01:11.068 then the state pension should give you that basics. If 0:01:11.069 --> 0:01:13.440 you think that actually that isn't quite sufficient for your 0:01:13.440 --> 0:01:15.360 needs or what you picture your retirement to be, you 0:01:15.360 --> 0:01:16.950 might want to look at what you can save for 0:01:16.950 --> 0:01:19.800 additionally through things like workplace or personal pensions. 0:01:19.980 --> 0:01:22.859 Okay, that's brilliant. So let's touch on workplace pensions then. 0:01:23.309 --> 0:01:24.750 So how exactly do those work? 0:01:24.780 --> 0:01:28.170 So if you are 22 years of age or older and earning 10,000 0:01:28.170 --> 0:01:31.110 pounds a year, your employer will automatically put you into 0:01:31.110 --> 0:01:34.559 a workplace pension. So we call that automatic enrollment. You can 0:01:34.560 --> 0:01:36.720 choose to join even if you don't meet that criteria 0:01:36.810 --> 0:01:41.910 and ask to be automatically enrolled. So why, I guess, 0:01:41.910 --> 0:01:45.179 workplace pensions and I think there's two big selling points 0:01:45.179 --> 0:01:48.059 of workplace pensions. In addition to the already great thing 0:01:48.059 --> 0:01:50.850 you're doing, which is putting money away for retirement, you 0:01:50.850 --> 0:01:53.910 get the benefit of employer contributions into your pension scheme. 0:01:54.480 --> 0:01:57.329 So currently, your employer has to pay 3% of your 0:01:57.330 --> 0:01:59.940 salary into your pension for you each year on your 0:01:59.940 --> 0:02:03.660 behalf. You also get money from the government. So if 0:02:03.660 --> 0:02:05.729 you're a basic taxpayer and you want to put a 0:02:05.730 --> 0:02:09.660 hundred pound a month into your pension, only 80 quid 0:02:09.660 --> 0:02:12.419 will be taken from your salary. The other 20 pound 0:02:12.419 --> 0:02:14.730 is paid for by the government under what's called tax 0:02:14.730 --> 0:02:18.630 relief. So the difference I think with pensions above things 0:02:18.630 --> 0:02:21.809 like ISAs, which are other good saving vehicles, is that 0:02:21.809 --> 0:02:24.660 two key additional sort of free money for you as 0:02:24.660 --> 0:02:25.320 an individual. 0:02:25.500 --> 0:02:28.080 I think when it comes to workplace pensions, let's just 0:02:28.080 --> 0:02:30.600 dive into employee contributions a little bit more I think. 0:02:30.900 --> 0:02:33.959 So when you contribute let's just say 5% to your 0:02:33.960 --> 0:02:36.508 pension, how does that work from your employer, their contribution 0:02:36.508 --> 0:02:36.900 into it? 0:02:37.020 --> 0:02:38.940 Yeah, so if you're paying 5%, which is the AE 0:02:38.940 --> 0:02:42.450 minimum, your employer pays 3% in your salary. A number 0:02:42.450 --> 0:02:45.419 of employers will pay additional amounts. So you can think 0:02:45.419 --> 0:02:48.600 about increasing your contribution and seeing if your employer will 0:02:48.600 --> 0:02:48.841 match that. 0:02:48.841 --> 0:02:51.930 So that's just extra money from your employer, almost like, 0:02:52.110 --> 0:02:53.519 I think the way I like to see it is 0:02:53.520 --> 0:02:55.889 like a deferred pay rise or deferred money that you're 0:02:55.889 --> 0:02:57.660 getting from your employer that you're going to have, maybe 0:02:57.660 --> 0:03:00.089 not right now into your bank account, but you'll have 0:03:00.090 --> 0:03:01.410 it at later date, I think is a good way to look 0:03:01.410 --> 0:03:01.620 at it. 0:03:01.650 --> 0:03:04.320 Yeah, I love that. That's the key thing about workplace pensions. 0:03:04.320 --> 0:03:06.929 You've said it better than me. Free money from your employer 0:03:06.960 --> 0:03:08.551 and free money from the government a s tax relief. 0:03:08.551 --> 0:03:13.199 I mean, what's better than free money? Right? What's better than that? Right, so as we've 0:03:13.200 --> 0:03:17.309 mentioned, pensions are important, however, most people don't start taking 0:03:17.309 --> 0:03:20.550 notice of their pension and their pension savings until they 0:03:20.550 --> 0:03:23.760 get older. So what's the best thing someone who's younger 0:03:23.760 --> 0:03:26.880 and listening can do to help keep track and remain 0:03:26.880 --> 0:03:28.559 on track when it comes to their pension savings? 0:03:28.620 --> 0:03:30.719 So I think it's about saving as early as you 0:03:30.719 --> 0:03:33.508 can, as much as you can. If you start saving 0:03:33.508 --> 0:03:36.029 in your early twenties and even in your early thirties, 0:03:36.360 --> 0:03:39.660 you are benefiting from the magic of compounding. So that 0:03:39.660 --> 0:03:42.330 can make a huge difference on the ultimate pension that 0:03:42.330 --> 0:03:44.130 you'll end up with. So if I give you an 0:03:44.130 --> 0:03:46.260 example of how that works, I'm going to use our names. 0:03:46.260 --> 0:03:46.320 Go for it. 0:03:46.320 --> 0:03:48.060 So if we've got a Kia and a Kim. 0:03:48.150 --> 0:03:48.570 Yes. 0:03:48.630 --> 0:03:52.649 If Kia and her employer together are contributing to 2, 000 0:03:52.650 --> 0:03:56.610 pounds a year to her pension and has done so from 0:03:56.610 --> 0:04:00.000 the age of 19 to 30, we project that that will give 0:04:00.000 --> 0:04:03.809 her an outcome on retirement of 243, 000. 0:04:04.050 --> 0:04:04.740 That's a good amount. 0:04:04.800 --> 0:04:05.430 That's an all right amount. 0:04:05.430 --> 0:04:05.730 Yeah. 0:04:05.730 --> 0:04:06.151 That's a good amount. 0:04:06.151 --> 0:04:07.110 I think Kia's happy with that. 0:04:09.030 --> 0:04:12.029 If you take Kim, similar details, her and employer pay 0:04:12.029 --> 0:04:15.390 in 2, 000 pound a year, but she starts at 30, but 0:04:15.390 --> 0:04:18.690 she saves all the way up to 65. So Kim's 0:04:18.690 --> 0:04:22.950 been saving for 35 years as opposed to Kia's 11, but 0:04:22.950 --> 0:04:25.740 her outcomes is expected to be 10,000 pounds less so 236, 0:04:25.799 --> 0:04:30.270 000 at retirement. So that just shows you that impact 0:04:30.359 --> 0:04:33.570 of starting early and what the compounding does to your 0:04:33.570 --> 0:04:34.650 eventual pension outcome. 0:04:34.740 --> 0:04:37.380 I think that's a key thing. I think compounding is 0:04:37.440 --> 0:04:40.439 often this word that is mixed up with investing isn't 0:04:40.440 --> 0:04:42.540 really explained. I think the way you've put it is 0:04:42.870 --> 0:04:46.109 so useful to everyone that the earlier you start, the 0:04:46.109 --> 0:04:48.209 more of an impact it can have and it almost 0:04:48.209 --> 0:04:50.640 makes it a bit easier to keep going in your 0:04:50.640 --> 0:04:52.979 savings and stay on track with your savings, I think. 0:04:53.010 --> 0:04:55.349 Exactly that. And your example earlier of free money, if we 0:04:55.350 --> 0:04:58.440 come back to that, that 2, 000 pound a year, Kia 0:04:58.440 --> 0:05:01.559 and Kim, they've both only paid a thousand each. The 0:05:01.559 --> 0:05:05.309 additional 250 from the government top up the tax relief 0:05:05.339 --> 0:05:08.010 and the 750 from the employer. So you're doubling the 0:05:08.010 --> 0:05:10.320 money and by investing it earlier, it's also then working 0:05:10.320 --> 0:05:10.650 for you. 0:05:10.710 --> 0:05:14.279 We love that, don't we? We love that, we do. So let's come 0:05:14.279 --> 0:05:16.738 to where we are right now. So right now, money is 0:05:16.740 --> 0:05:19.948 unfortunately really tight and it's easy to be tempted to 0:05:19.950 --> 0:05:22.949 reduce how much people save into their pensions. I know 0:05:22.949 --> 0:05:24.750 it's definitely a toss up. Do you take the money 0:05:24.750 --> 0:05:26.580 now or do you still keep saving the amount that 0:05:26.580 --> 0:05:28.650 you have been? So what would you say to someone 0:05:28.650 --> 0:05:31.740 who's considering reducing the amount that they contribute to their pension? 0:05:31.800 --> 0:05:35.430 I think everyone is going to have different circumstances and 0:05:35.550 --> 0:05:37.740 I think my key thing would be make sure it's 0:05:37.740 --> 0:05:40.770 a considered ask, so understand what you'd be getting in 0:05:40.770 --> 0:05:43.050 your pocket today and that point I just made on 0:05:43.050 --> 0:05:45.570 what that could look like over time. Now, if you 0:05:45.570 --> 0:05:47.488 need your money in your pocket today, you need your 0:05:47.490 --> 0:05:49.529 money in your pocket today, but it is a good 0:05:49.529 --> 0:05:51.570 deal and so you need to be considering what it 0:05:51.570 --> 0:05:53.130 could be impacting you in the future. 0:05:53.219 --> 0:05:54.450 I think that's a really good point. I think it's 0:05:54.450 --> 0:05:57.270 important to always just sit down and review your finances. 0:05:57.270 --> 0:05:59.819 And like you said, see if you reduce it by 0:05:59.820 --> 0:06:02.070 a certain amount, how much does that leave you with, 0:06:02.070 --> 0:06:04.080 if it's something that can help you or should you 0:06:04.140 --> 0:06:07.140 keep your pension contributions the same amount. It is a 0:06:07.140 --> 0:06:09.900 very unique decision to make and it's one that should 0:06:09.900 --> 0:06:11.818 be well thought through as you said. So I completely 0:06:11.820 --> 0:06:14.370 agree with you. Now, let's look on the flip side. 0:06:15.330 --> 0:06:18.839 Is it worth, Kim, paying more into your pension if you 0:06:18.839 --> 0:06:19.378 have the option? 0:06:19.560 --> 0:06:21.779 Yeah, so I think many of us dream about what 0:06:21.779 --> 0:06:24.779 that retirement could look like. We talk about every day 0:06:24.779 --> 0:06:27.928 is a weekend when you retire, but I don't know about you, but 0:06:27.928 --> 0:06:29.310 weekends can be quite expensive. 0:06:29.400 --> 0:06:30.508 Oh, they can. They can. 0:06:30.509 --> 0:06:30.629 For me. 0:06:30.629 --> 0:06:31.080 Depending on what you do, they can. 0:06:32.880 --> 0:06:35.909 So the research I referred to at the start, the 0:06:35.969 --> 0:06:38.910 expectations of 22 to 32 year olds and many are 0:06:38.910 --> 0:06:42.029 looking to retire age 60, and the earlier you retire, 0:06:42.150 --> 0:06:43.950 the more your pension has to do for you, the 0:06:43.950 --> 0:06:46.198 longer you're going to be relying on it. So there's 0:06:46.320 --> 0:06:48.900 things you can do as you go. So if you're 0:06:48.900 --> 0:06:52.289 getting a pay increase, think about is this a part 0:06:52.289 --> 0:06:55.589 of that you can add to your pension contributions, that 0:06:55.589 --> 0:06:57.779 you won't perhaps miss in your pocket yet today, but 0:06:57.779 --> 0:07:00.630 can go and look for saving for your future. Same 0:07:00.630 --> 0:07:03.809 with bonuses, part or some or all of your bonus 0:07:03.809 --> 0:07:06.449 can go into your pension and that'll be tax- free. 0:07:06.990 --> 0:07:10.349 I'd also think about it in particular life events. So 0:07:10.350 --> 0:07:13.860 career breaks can have a huge impact on your pension outcomes. 0:07:14.460 --> 0:07:17.700 We experience what we call the gender pensions gap, which 0:07:17.700 --> 0:07:20.460 is that women are walking away at retirement with half 0:07:20.460 --> 0:07:22.950 the pension pot of men. Some of the factors of 0:07:22.950 --> 0:07:27.570 that include cost of childcare, breaks for maternity, the increased 0:07:27.570 --> 0:07:31.080 likelihood of being a carer and also potentially walking away 0:07:31.080 --> 0:07:34.470 from work earlier due to symptoms of menopause. So I 0:07:34.470 --> 0:07:38.010 think it's about understanding and planning for particular life events, 0:07:38.010 --> 0:07:41.040 whether that's maternity or paternity leave. I know as a 0:07:41.130 --> 0:07:42.690 mum of a two- year- old, it's not top of 0:07:42.690 --> 0:07:45.150 your list, pensions, when you're doing some of these big things, 0:07:45.150 --> 0:07:46.530 but it should be on your list. 0:07:47.010 --> 0:07:49.050 Just touching on what you said there then, obviously there 0:07:49.080 --> 0:07:52.260 is that pensions gap. So if we're speaking directly to 0:07:52.260 --> 0:07:55.770 women then, what can women do to almost help their 0:07:55.770 --> 0:07:57.570 pension contributions and their savings? 0:07:57.690 --> 0:08:00.359 So I think there's a lot as individuals women can do. 0:08:00.420 --> 0:08:04.049 So they can plan, they can continue to pay maternity 0:08:04.049 --> 0:08:06.390 contribution, they can talk to their partner at a household 0:08:06.420 --> 0:08:09.510 level. The reason we have gender pension gaps or in 0:08:09.510 --> 0:08:12.840 fact pension gaps across a number of different minority criteria 0:08:13.320 --> 0:08:17.610 is multifaceted. So we need solutions across legislative change, we 0:08:17.610 --> 0:08:21.749 need employer policy review all in the support of producing 0:08:21.750 --> 0:08:23.789 more equality at pension outcomes. 0:08:23.850 --> 0:08:26.490 I completely agree and I think it's important for people 0:08:26.490 --> 0:08:30.030 to know the different ways that they can contribute, especially women, 0:08:30.270 --> 0:08:32.639 and even the fact that your partner can contribute on 0:08:32.639 --> 0:08:34.050 your behalf. I think a lot of people don't realize 0:08:34.050 --> 0:08:36.929 that and there's different things that can help boost those 0:08:36.929 --> 0:08:38.700 savings even when you just take time off and you 0:08:38.700 --> 0:08:41.850 do have other responsibilities that require you and may not 0:08:41.850 --> 0:08:45.030 be your pension so much. So I want to ask 0:08:45.030 --> 0:08:47.730 you a question as well. When it comes to pensions, 0:08:48.059 --> 0:08:50.910 a lot of people don't know how much they should 0:08:50.910 --> 0:08:53.040 have in their savings. What does that look like? As 0:08:53.040 --> 0:08:54.929 you mentioned in the beginning, the state pension is around 0:08:54.929 --> 0:08:57.660 10,000 pounds per year. How can someone, even if it's 0:08:57.660 --> 0:09:00.238 just like an estimate, how can someone get a good 0:09:00.300 --> 0:09:02.640 understanding of how much they should aim to have in their 0:09:02.670 --> 0:09:03.180 pension pot? 0:09:03.360 --> 0:09:05.340 There are different tools out there that can help you 0:09:05.490 --> 0:09:07.650 look at that. Most pension providers will have things like 0:09:07.650 --> 0:09:10.860 calculators online. You can look at what sort of age you're 0:09:10.920 --> 0:09:14.700 looking at, the type of experience you want to have 0:09:14.700 --> 0:09:17.910 at retirement. So whether that looks like one holiday a 0:09:17.910 --> 0:09:20.220 year, whether that looks like a holiday in the UK 0:09:20.220 --> 0:09:23.010 or abroad, the type of lifestyle you're looking at. And 0:09:23.010 --> 0:09:24.990 then it'll help you calculate what you need to be 0:09:24.990 --> 0:09:28.500 contributing today and you can consider if that's sufficient, based 0:09:28.500 --> 0:09:30.599 on who you are, what wider savings you have and 0:09:30.599 --> 0:09:32.009 what kind of retirement you're looking for. 0:09:32.160 --> 0:09:34.739 That's really useful. Have a look at pension calculators, have 0:09:34.740 --> 0:09:36.660 a look at some of the stats to kind of 0:09:36.690 --> 0:09:38.520 give you a good baseline and guideline for how much 0:09:38.520 --> 0:09:42.809 you should have saved. Love that. So Kim, pensions are also 0:09:42.809 --> 0:09:44.820 a form of investment and I know when you think 0:09:44.820 --> 0:09:47.340 of it like that, sometimes it can be so overwhelming because 0:09:47.340 --> 0:09:50.610 the world of investing just seems so scary. So what is 0:09:50.610 --> 0:09:54.420 something that our listeners should consider on that side when 0:09:54.420 --> 0:09:55.170 it comes to pensions? 0:09:55.200 --> 0:09:57.750 So I think that's a really good point. So pensions, 0:09:57.809 --> 0:10:01.319 like any investment, can go up and down and there 0:10:01.320 --> 0:10:03.000 is the risk that you could end up getting less than 0:10:03.000 --> 0:10:04.800 you put in. So that's something to be mindful of, 0:10:04.800 --> 0:10:07.799 but I don't think because it's investing people should just 0:10:07.799 --> 0:10:11.699 focus on the more daunting aspects of investment. Investment, I 0:10:11.699 --> 0:10:14.819 think, is really exciting and really interesting and you as 0:10:14.820 --> 0:10:17.760 a person saving to a pension, your contributions are being 0:10:17.760 --> 0:10:20.730 invested and you can choose to make decisions about that 0:10:20.730 --> 0:10:23.070 if you want to. If you want to move away 0:10:23.070 --> 0:10:25.319 from the fund you're being put into, you can pick 0:10:25.320 --> 0:10:28.170 a fund that's higher risk, but potentially with higher reward 0:10:28.289 --> 0:10:31.050 if that's something you're interested. You can also pick funds 0:10:31.050 --> 0:10:33.960 suited to your particular beliefs, whether that's religious beliefs or 0:10:34.200 --> 0:10:37.410 looking at funds that are more focused on ethical, responsible, 0:10:37.410 --> 0:10:38.490 sustainable investing. 0:10:38.580 --> 0:10:41.040 I think that's great. I think it's good to be 0:10:41.040 --> 0:10:43.139 able to know that you can adapt things like your 0:10:43.139 --> 0:10:47.458 pension to suit your morals and your views and ultimately 0:10:47.549 --> 0:10:49.468 the risks that you want to save your money with, whether you 0:10:49.470 --> 0:10:51.270 want to be really high risk, like you said, maybe 0:10:51.570 --> 0:10:53.160 you're someone who's younger, for example. I know I'm a 0:10:53.160 --> 0:10:55.559 high risk person, I don't mind, let's go for it. 0:10:55.860 --> 0:10:57.899 Or you want to be low risk. It's completely up 0:10:57.900 --> 0:10:59.069 to you and it's tailored to you. So I think 0:10:59.070 --> 0:11:01.140 that's a great point to make as well. Okay, Kim, 0:11:01.530 --> 0:11:03.750 we're going to wrap things up now. What are the three 0:11:03.780 --> 0:11:06.840 quick things that you can recommend someone does if they're 0:11:06.840 --> 0:11:09.449 wanting to use their pension to get a little bit richer? 0:11:09.690 --> 0:11:13.500 So I think it's about keeping track of your pension. We don't 0:11:13.500 --> 0:11:15.630 have jobs for lives anymore. When you are moving jobs, 0:11:15.630 --> 0:11:18.840 keep track, you can also pull those pots together, that's 0:11:18.840 --> 0:11:22.409 your preference, under what we call consolidation. It's about looking 0:11:22.410 --> 0:11:24.479 at all those things we've talked about, about ways to 0:11:24.480 --> 0:11:27.210 get additional money in. So talk to your employer, see if 0:11:27.210 --> 0:11:30.750 there is contribution matching, if you can put any additional aside, 0:11:30.750 --> 0:11:35.099 particularly in earlier years. And then I think it's about 0:11:35.099 --> 0:11:37.170 saving as much as you can for as early as 0:11:37.170 --> 0:11:39.689 you can so that your pension can start working for you. 0:11:40.080 --> 0:11:42.900 Amazing. Kim, this has been such a great episode to 0:11:42.900 --> 0:11:46.230 learn more about pensions. And hopefully everyone listening knows that we can 0:11:46.230 --> 0:11:49.140 start early and get those pension savings rolling. We've been 0:11:49.140 --> 0:11:51.300 looking ahead to retirement, but let's bring things back into 0:11:51.300 --> 0:11:53.670 the present day a bit more. There's so many hacks 0:11:53.670 --> 0:11:55.710 to make sure you're getting the most out of working 0:11:55.710 --> 0:11:58.230 life, and that's what the next episode's all about, the 0:11:58.230 --> 0:12:00.838 world of workplace benefits. And it's not just work from 0:12:00.840 --> 0:12:03.809 home and free lunches, there's so much more. That's out 0:12:03.809 --> 0:12:05.970 next week. But while you wait, if this stuff is 0:12:05.970 --> 0:12:08.338 working for you, then hit follow, tell your friends and 0:12:08.340 --> 0:12:11.460 come back next time. Until then, have a good week 0:12:11.730 --> 0:12:13.710 and go stick some money in your pension.