Kia: Hey, hey, it's Kia and you're listening to A Little
Kia: Bit Richer. Pensions - we all know it's good to save
Kia: into one, but it's so tempting to put it off until
Kia: retirement's closer. It's understandable, but if you're wanting to get A
Kia: Little Bit Richer, you've got to think about your long-term
Kia: financial journey too. Let's get into this more. Today, I'm
Kia: talking to Kim Brown, Legal & General's Pension Scheme Director. She's
Kia: going to explain more about workplace pensions. But just before
Kia: we get into this, it's worth saying that you're likely
Kia: to have a workplace pension if you're working for a company.
Kia: If you're working for yourself, you can save into a
Kia: personal pension and we'll cover this topic in a later episode. Okay, Kim,
Kia: let's break it down. What's the difference between a state
Kia: pension and your own pension savings, and why is it
Kia: important to have both?
Kim Brown: So the state pension's paid for by the government when
Kim Brown: you reach, currently, age 66. Research we've done on 22 to 32
Kim Brown: year old shows that 22% of that group are looking
Kim Brown: to rely solely on their state pension at retirement. Now,
Kim Brown: the state pension is 10, 000 pounds a year, provided you've
Kim Brown: had 35 years or more in national insurance contributions. So
Kim Brown: provided you're willing to wait until age 66 to start
Kim Brown: and provided 10, 000 sounds enough for you to live on,
Kim Brown: then the state pension should give you that basics. If
Kim Brown: you think that actually that isn't quite sufficient for your
Kim Brown: needs or what you picture your retirement to be, you
Kim Brown: might want to look at what you can save for
Kim Brown: additionally through things like workplace or personal pensions.
Kia: Okay, that's brilliant. So let's touch on workplace pensions then.
Kia: So how exactly do those work?
Kim Brown: So if you are 22 years of age or older and earning 10,000
Kim Brown: pounds a year, your employer will automatically put you into
Kim Brown: a workplace pension. So we call that automatic enrollment. You can
Kim Brown: choose to join even if you don't meet that criteria
Kim Brown: and ask to be automatically enrolled. So why, I guess,
Kim Brown: workplace pensions and I think there's two big selling points
Kim Brown: of workplace pensions. In addition to the already great thing
Kim Brown: you're doing, which is putting money away for retirement, you
Kim Brown: get the benefit of employer contributions into your pension scheme.
Kim Brown: So currently, your employer has to pay 3% of your
Kim Brown: salary into your pension for you each year on your
Kim Brown: behalf. You also get money from the government. So if
Kim Brown: you're a basic taxpayer and you want to put a
Kim Brown: hundred pound a month into your pension, only 80 quid
Kim Brown: will be taken from your salary. The other 20 pound
Kim Brown: is paid for by the government under what's called tax
Kim Brown: relief. So the difference I think with pensions above things
Kim Brown: like ISAs, which are other good saving vehicles, is that
Kim Brown: two key additional sort of free money for you as
Kim Brown: an individual.
Kia: I think when it comes to workplace pensions, let's just
Kia: dive into employee contributions a little bit more I think.
Kia: So when you contribute let's just say 5% to your
Kia: pension, how does that work from your employer, their contribution
Kia: into it?
Kim Brown: Yeah, so if you're paying 5%, which is the AE
Kim Brown: minimum, your employer pays 3% in your salary. A number
Kim Brown: of employers will pay additional amounts. So you can think
Kim Brown: about increasing your contribution and seeing if your employer will
Kim Brown: match that.
Kia: So that's just extra money from your employer, almost like,
Kia: I think the way I like to see it is
Kia: like a deferred pay rise or deferred money that you're
Kia: getting from your employer that you're going to have, maybe
Kia: not right now into your bank account, but you'll have
Kia: it at later date, I think is a good way to look
Kia: at it.
Kim Brown: Yeah, I love that. That's the key thing about workplace pensions.
Kim Brown: You've said it better than me. Free money from your employer
Kim Brown: and free money from the government a s tax relief.
Kia: I mean, what's better than free money? Right? What's better than that? Right, so as we've
Kia: mentioned, pensions are important, however, most people don't start taking
Kia: notice of their pension and their pension savings until they
Kia: get older. So what's the best thing someone who's younger
Kia: and listening can do to help keep track and remain
Kia: on track when it comes to their pension savings?
Kim Brown: So I think it's about saving as early as you
Kim Brown: can, as much as you can. If you start saving
Kim Brown: in your early twenties and even in your early thirties,
Kim Brown: you are benefiting from the magic of compounding. So that
Kim Brown: can make a huge difference on the ultimate pension that
Kim Brown: you'll end up with. So if I give you an
Kim Brown: example of how that works, I'm going to use our names.
Kia: Go for it.
Kim Brown: So if we've got a Kia and a Kim.
Kia: Yes.
Kim Brown: If Kia and her employer together are contributing to 2, 000
Kim Brown: pounds a year to her pension and has done so from
Kim Brown: the age of 19 to 30, we project that that will give
Kim Brown: her an outcome on retirement of 243, 000.
Kia: That's a good amount.
Kim Brown: That's an all right amount.
Kia: Yeah.
Kim Brown: That's a good amount.
Kia: I think Kia's happy with that.
Kim Brown: If you take Kim, similar details, her and employer pay
Kim Brown: in 2, 000 pound a year, but she starts at 30, but
Kim Brown: she saves all the way up to 65. So Kim's
Kim Brown: been saving for 35 years as opposed to Kia's 11, but
Kim Brown: her outcomes is expected to be 10,000 pounds less so 236,
Kim Brown: 000 at retirement. So that just shows you that impact
Kim Brown: of starting early and what the compounding does to your
Kim Brown: eventual pension outcome.
Kia: I think that's a key thing. I think compounding is
Kia: often this word that is mixed up with investing isn't
Kia: really explained. I think the way you've put it is
Kia: so useful to everyone that the earlier you start, the
Kia: more of an impact it can have and it almost
Kia: makes it a bit easier to keep going in your
Kia: savings and stay on track with your savings, I think.
Kim Brown: Exactly that. And your example earlier of free money, if we
Kim Brown: come back to that, that 2, 000 pound a year, Kia
Kim Brown: and Kim, they've both only paid a thousand each. The
Kim Brown: additional 250 from the government top up the tax relief
Kim Brown: and the 750 from the employer. So you're doubling the
Kim Brown: money and by investing it earlier, it's also then working
Kim Brown: for you.
Kia: We love that, don't we? We love that, we do. So let's come
Kia: to where we are right now. So right now, money is
Kia: unfortunately really tight and it's easy to be tempted to
Kia: reduce how much people save into their pensions. I know
Kia: it's definitely a toss up. Do you take the money
Kia: now or do you still keep saving the amount that
Kia: you have been? So what would you say to someone
Kia: who's considering reducing the amount that they contribute to their pension?
Kim Brown: I think everyone is going to have different circumstances and
Kim Brown: I think my key thing would be make sure it's
Kim Brown: a considered ask, so understand what you'd be getting in
Kim Brown: your pocket today and that point I just made on
Kim Brown: what that could look like over time. Now, if you
Kim Brown: need your money in your pocket today, you need your
Kim Brown: money in your pocket today, but it is a good
Kim Brown: deal and so you need to be considering what it
Kim Brown: could be impacting you in the future.
Kia: I think that's a really good point. I think it's
Kia: important to always just sit down and review your finances.
Kia: And like you said, see if you reduce it by
Kia: a certain amount, how much does that leave you with,
Kia: if it's something that can help you or should you
Kia: keep your pension contributions the same amount. It is a
Kia: very unique decision to make and it's one that should
Kia: be well thought through as you said. So I completely
Kia: agree with you. Now, let's look on the flip side.
Kia: Is it worth, Kim, paying more into your pension if you
Kia: have the option?
Kim Brown: Yeah, so I think many of us dream about what
Kim Brown: that retirement could look like. We talk about every day
Kim Brown: is a weekend when you retire, but I don't know about you, but
Kim Brown: weekends can be quite expensive.
Kia: Oh, they can. They can.
Kim Brown: For me.
Kia: Depending on what you do, they can.
Kim Brown: So the research I referred to at the start, the
Kim Brown: expectations of 22 to 32 year olds and many are
Kim Brown: looking to retire age 60, and the earlier you retire,
Kim Brown: the more your pension has to do for you, the
Kim Brown: longer you're going to be relying on it. So there's
Kim Brown: things you can do as you go. So if you're
Kim Brown: getting a pay increase, think about is this a part
Kim Brown: of that you can add to your pension contributions, that
Kim Brown: you won't perhaps miss in your pocket yet today, but
Kim Brown: can go and look for saving for your future. Same
Kim Brown: with bonuses, part or some or all of your bonus
Kim Brown: can go into your pension and that'll be tax- free.
Kim Brown: I'd also think about it in particular life events. So
Kim Brown: career breaks can have a huge impact on your pension outcomes.
Kim Brown: We experience what we call the gender pensions gap, which
Kim Brown: is that women are walking away at retirement with half
Kim Brown: the pension pot of men. Some of the factors of
Kim Brown: that include cost of childcare, breaks for maternity, the increased
Kim Brown: likelihood of being a carer and also potentially walking away
Kim Brown: from work earlier due to symptoms of menopause. So I
Kim Brown: think it's about understanding and planning for particular life events,
Kim Brown: whether that's maternity or paternity leave. I know as a
Kim Brown: mum of a two- year- old, it's not top of
Kim Brown: your list, pensions, when you're doing some of these big things,
Kim Brown: but it should be on your list.
Kia: Just touching on what you said there then, obviously there
Kia: is that pensions gap. So if we're speaking directly to
Kia: women then, what can women do to almost help their
Kia: pension contributions and their savings?
Kim Brown: So I think there's a lot as individuals women can do.
Kim Brown: So they can plan, they can continue to pay maternity
Kim Brown: contribution, they can talk to their partner at a household
Kim Brown: level. The reason we have gender pension gaps or in
Kim Brown: fact pension gaps across a number of different minority criteria
Kim Brown: is multifaceted. So we need solutions across legislative change, we
Kim Brown: need employer policy review all in the support of producing
Kim Brown: more equality at pension outcomes.
Kia: I completely agree and I think it's important for people
Kia: to know the different ways that they can contribute, especially women,
Kia: and even the fact that your partner can contribute on
Kia: your behalf. I think a lot of people don't realize
Kia: that and there's different things that can help boost those
Kia: savings even when you just take time off and you
Kia: do have other responsibilities that require you and may not
Kia: be your pension so much. So I want to ask
Kia: you a question as well. When it comes to pensions,
Kia: a lot of people don't know how much they should
Kia: have in their savings. What does that look like? As
Kia: you mentioned in the beginning, the state pension is around
Kia: 10,000 pounds per year. How can someone, even if it's
Kia: just like an estimate, how can someone get a good
Kia: understanding of how much they should aim to have in their
Kia: pension pot?
Kim Brown: There are different tools out there that can help you
Kim Brown: look at that. Most pension providers will have things like
Kim Brown: calculators online. You can look at what sort of age you're
Kim Brown: looking at, the type of experience you want to have
Kim Brown: at retirement. So whether that looks like one holiday a
Kim Brown: year, whether that looks like a holiday in the UK
Kim Brown: or abroad, the type of lifestyle you're looking at. And
Kim Brown: then it'll help you calculate what you need to be
Kim Brown: contributing today and you can consider if that's sufficient, based
Kim Brown: on who you are, what wider savings you have and
Kim Brown: what kind of retirement you're looking for.
Kia: That's really useful. Have a look at pension calculators, have
Kia: a look at some of the stats to kind of
Kia: give you a good baseline and guideline for how much
Kia: you should have saved. Love that. So Kim, pensions are also
Kia: a form of investment and I know when you think
Kia: of it like that, sometimes it can be so overwhelming because
Kia: the world of investing just seems so scary. So what is
Kia: something that our listeners should consider on that side when
Kia: it comes to pensions?
Kim Brown: So I think that's a really good point. So pensions,
Kim Brown: like any investment, can go up and down and there
Kim Brown: is the risk that you could end up getting less than
Kim Brown: you put in. So that's something to be mindful of,
Kim Brown: but I don't think because it's investing people should just
Kim Brown: focus on the more daunting aspects of investment. Investment, I
Kim Brown: think, is really exciting and really interesting and you as
Kim Brown: a person saving to a pension, your contributions are being
Kim Brown: invested and you can choose to make decisions about that
Kim Brown: if you want to. If you want to move away
Kim Brown: from the fund you're being put into, you can pick
Kim Brown: a fund that's higher risk, but potentially with higher reward
Kim Brown: if that's something you're interested. You can also pick funds
Kim Brown: suited to your particular beliefs, whether that's religious beliefs or
Kim Brown: looking at funds that are more focused on ethical, responsible,
Kim Brown: sustainable investing.
Kia: I think that's great. I think it's good to be
Kia: able to know that you can adapt things like your
Kia: pension to suit your morals and your views and ultimately
Kia: the risks that you want to save your money with, whether you
Kia: want to be really high risk, like you said, maybe
Kia: you're someone who's younger, for example. I know I'm a
Kia: high risk person, I don't mind, let's go for it.
Kia: Or you want to be low risk. It's completely up
Kia: to you and it's tailored to you. So I think
Kia: that's a great point to make as well. Okay, Kim,
Kia: we're going to wrap things up now. What are the three
Kia: quick things that you can recommend someone does if they're
Kia: wanting to use their pension to get a little bit richer?
Kim Brown: So I think it's about keeping track of your pension. We don't
Kim Brown: have jobs for lives anymore. When you are moving jobs,
Kim Brown: keep track, you can also pull those pots together, that's
Kim Brown: your preference, under what we call consolidation. It's about looking
Kim Brown: at all those things we've talked about, about ways to
Kim Brown: get additional money in. So talk to your employer, see if
Kim Brown: there is contribution matching, if you can put any additional aside,
Kim Brown: particularly in earlier years. And then I think it's about
Kim Brown: saving as much as you can for as early as
Kim Brown: you can so that your pension can start working for you.
Kia: Amazing. Kim, this has been such a great episode to
Kia: learn more about pensions. And hopefully everyone listening knows that we can
Kia: start early and get those pension savings rolling. We've been
Kia: looking ahead to retirement, but let's bring things back into
Kia: the present day a bit more. There's so many hacks
Kia: to make sure you're getting the most out of working
Kia: life, and that's what the next episode's all about, the
Kia: world of workplace benefits. And it's not just work from
Kia: home and free lunches, there's so much more. That's out
Kia: next week. But while you wait, if this stuff is
Kia: working for you, then hit follow, tell your friends and
Kia: come back next time. Until then, have a good week
Kia: and go stick some money in your pension.