WEBVTT - Pensions - Exercising Control and Risk! 0:00:01.650 --> 0:00:04.980 Hey, it's Kia. We've talked a lot on this podcast 0:00:04.980 --> 0:00:08.250 about the importance of workplace pensions. Kim Brown did two 0:00:08.250 --> 0:00:10.500 great episodes with me on getting to grips with your 0:00:10.500 --> 0:00:13.950 workplace pension and why they matter so much. But today, 0:00:14.070 --> 0:00:17.430 we're diving deeper into how your pension is invested. If 0:00:17.430 --> 0:00:20.040 you've been saving into your workplace pension and wondering about 0:00:20.040 --> 0:00:22.739 its performance, this is the episode for you. So what 0:00:22.739 --> 0:00:25.590 does your dream retirement look like? Holidays twice a year, 0:00:25.829 --> 0:00:28.620 being completely mortgage free, or having the money to pay 0:00:28.620 --> 0:00:32.640 for your grandkids' education? Well, however your ideal retirement looks, 0:00:32.640 --> 0:00:34.800 knowing where your money is invested and how it's growing 0:00:34.800 --> 0:00:37.260 for you is going to be crucial. Welcome to another 0:00:37.260 --> 0:00:39.330 episode of A Little Bit Richer, brought to you by 0:00:39.330 --> 0:00:42.360 my friends at Legal & General. Today, we have another expert 0:00:42.360 --> 0:00:45.690 from Legal & General, Michael Porter. Michael heads up the Workplace 0:00:45.690 --> 0:00:48.420 Pension Product Team at Legal & General, so he's the right 0:00:48.420 --> 0:00:51.240 man to explain more on how pension savings are invested, 0:00:51.690 --> 0:00:54.840 changes you can make, and how investment risk is defined. 0:00:56.670 --> 0:00:57.780 Welcome, Michael. 0:00:57.840 --> 0:00:59.070 Thank you, Kia. Nice to be here. 0:00:59.370 --> 0:01:01.170 I'm really excited to have you here and talk about 0:01:01.170 --> 0:01:04.290 one of my favorite topics ever, pensions. So first things 0:01:04.290 --> 0:01:07.380 first, can you explain more about how your pension savings 0:01:07.380 --> 0:01:08.399 are actually invested? 0:01:08.760 --> 0:01:11.940 Absolutely. So the first thing to understand is that your 0:01:11.940 --> 0:01:14.819 pension savings are invested, as you say in your question. 0:01:15.270 --> 0:01:18.420 Your pension savings aren't held in a bank account or 0:01:18.420 --> 0:01:22.709 a cash savings account, so where it gathers interest and 0:01:22.740 --> 0:01:25.950 the value tends to go up and not down. Pension 0:01:25.950 --> 0:01:29.730 savings are pooled together with other pension saver money, and 0:01:29.730 --> 0:01:33.000 they then are invested into something called an investment fund, 0:01:33.000 --> 0:01:35.880 which buy and sell different types of investments, which I'll 0:01:35.880 --> 0:01:38.819 come on to explain later. But the value of those 0:01:38.819 --> 0:01:40.110 can go up and down. 0:01:40.680 --> 0:01:44.040 I think when it comes to pensions, they're such a 0:01:44.040 --> 0:01:47.160 great tool when it comes to planning for your retirement 0:01:47.160 --> 0:01:49.020 and having that money stored there, but it can be 0:01:49.020 --> 0:01:51.210 quite confusing. So I'm glad that you broke it down 0:01:51.210 --> 0:01:53.730 for us. But let's get a bit deeper then. So 0:01:53.730 --> 0:01:56.370 can you talk a bit more about investment risk and 0:01:56.370 --> 0:01:58.710 what that actually means? Because I think when we talk 0:01:58.710 --> 0:02:01.410 about investments and pensions, retirement, you want to make sure 0:02:01.410 --> 0:02:03.540 that you've got that secure cushion there. So when you 0:02:03.540 --> 0:02:05.820 hear the word risk, you get a bit scared, but 0:02:06.090 --> 0:02:07.230 what does that actually mean? 0:02:07.380 --> 0:02:08.940 So the first thing to note is that there are 0:02:08.940 --> 0:02:12.330 different types of investments that your pension savings might buy. 0:02:12.780 --> 0:02:18.090 There are equities, bonds, property, cash, or a combination of 0:02:18.090 --> 0:02:22.020 those. Now equities are where your money gets put to 0:02:22.020 --> 0:02:25.350 good work by investing into companies, and those are typically 0:02:25.350 --> 0:02:28.770 listed on a stock exchange, and the value of those 0:02:28.770 --> 0:02:31.440 companies goes up and down depending on how they perform. 0:02:31.919 --> 0:02:36.418 Then you've got bonds. Bonds are basically companies or governments 0:02:36.419 --> 0:02:39.329 that are taking out a loan, and with that loan, 0:02:39.540 --> 0:02:42.389 they pay interest on the amount of money that is 0:02:42.389 --> 0:02:44.730 being borrowed, and then at the end of that loan, 0:02:44.760 --> 0:02:47.100 once it matures, they pay back the original amount of 0:02:47.100 --> 0:02:52.530 that loan. You then have property. Property is investing into 0:02:52.530 --> 0:02:55.829 commercial real estate or commercial properties. So that might be 0:02:56.190 --> 0:02:59.790 a factory, a commercial unit, it could be an office 0:02:59.790 --> 0:03:03.930 block. And when an investment fund purchases one of these 0:03:03.930 --> 0:03:06.360 types of properties, the value of that property goes up 0:03:06.360 --> 0:03:10.169 and down. But also, those properties tend to be let 0:03:10.169 --> 0:03:13.440 out and then they receive rental income, which all goes 0:03:13.440 --> 0:03:18.090 towards helping your savings grow. Then you have cash, and 0:03:18.090 --> 0:03:21.900 cash isn't physically held cash, so it's not like cash under a 0:03:21.900 --> 0:03:26.400 mattress. It's held on something called overnight deposit. Now that 0:03:26.400 --> 0:03:29.040 might be with a financial institution or it might be 0:03:29.040 --> 0:03:31.350 with the government, and they tend to be a bit 0:03:31.350 --> 0:03:33.720 more secure. They're not guaranteed to not go down, but 0:03:33.720 --> 0:03:36.030 they are a bit more secure. And then you have 0:03:36.060 --> 0:03:39.300 a combination. So some investment funds might not be specific 0:03:39.300 --> 0:03:41.910 to one of those types of investments. They might hold 0:03:41.910 --> 0:03:45.480 multiple investment types, and those tend to be called multi- 0:03:45.480 --> 0:03:50.640 asset funds or diversified funds, diversified growth funds. Then risk. 0:03:51.030 --> 0:03:55.320 Different investments have different levels of risk. So basically what 0:03:55.320 --> 0:03:58.410 risk means is it's the likelihood that the value of 0:03:58.410 --> 0:04:01.080 your pension savings might go down. Now they go up 0:04:01.080 --> 0:04:03.900 and down all the time, but in the shorter term, 0:04:03.930 --> 0:04:06.960 it's all about how likely is your money going to 0:04:06.960 --> 0:04:10.020 go down the following day or that particular day, and 0:04:10.020 --> 0:04:13.050 that's what we call volatility. So one of the benefits 0:04:13.050 --> 0:04:16.620 of having a pension is that your monthly savings go 0:04:16.620 --> 0:04:19.620 into buying these investments. Now, you might have heard of 0:04:19.620 --> 0:04:23.670 something called pound cost averaging. What this basically means is drip- 0:04:23.670 --> 0:04:26.880 feeding your money into pension savings, and some months you'll 0:04:26.880 --> 0:04:29.880 be buying investments when they're lower, sometimes you'll be buying 0:04:29.880 --> 0:04:34.140 investments when it's higher. This smooths out your investment experience 0:04:34.140 --> 0:04:37.320 and reduces the level of risk attributed to your funds, 0:04:37.740 --> 0:04:40.589 but ultimately, it averages out and it reduces the amount 0:04:40.589 --> 0:04:43.110 of risk that your pension savings have. You can think 0:04:43.110 --> 0:04:45.690 about it a little bit like British weather, particularly in 0:04:45.690 --> 0:04:49.500 summertime, when there might be dry days, there might be 0:04:49.710 --> 0:04:53.520 wet, rainy, cold days. But if you look back across 0:04:53.520 --> 0:04:58.440 history, typically, summer tends to be warmer, hotter, and drier 0:04:58.470 --> 0:05:01.500 more often than not. So that's the benefit of pound 0:05:01.500 --> 0:05:04.860 cost averaging. So sometimes your money might go in and 0:05:04.860 --> 0:05:07.800 you're buying investments at higher cost, sometimes you'll be buying 0:05:07.800 --> 0:05:10.410 them at a lower cost, but ultimately it averages out 0:05:10.410 --> 0:05:13.380 and it reduces the amount of risk that your pension 0:05:13.380 --> 0:05:13.741 savings have. 0:05:13.741 --> 0:05:15.810 So that is a good thing to note there. So thank you 0:05:15.810 --> 0:05:19.080 for telling us about that. You've done a really good 0:05:19.080 --> 0:05:22.800 job at breaking down the different assets that can come 0:05:22.800 --> 0:05:26.250 with an investment fund. So can you explain to us 0:05:26.250 --> 0:05:28.800 a bit more when it comes to workplace pension, where 0:05:28.800 --> 0:05:30.810 are our savings usually invested? 0:05:31.620 --> 0:05:36.240 So your savings are automatically invested somewhere. So that tends 0:05:36.240 --> 0:05:38.790 to be called a default fund, or you might also 0:05:38.790 --> 0:05:41.820 see it referred to as a default investment option. Now, 0:05:41.820 --> 0:05:44.790 there are different types of default investment options. It might 0:05:44.790 --> 0:05:47.099 be a single fund or it might be a combination 0:05:47.130 --> 0:05:50.790 of different types of funds that leads to an investment 0:05:50.790 --> 0:05:55.140 strategy. So you have somebody that's there managing your funds 0:05:55.140 --> 0:05:57.930 and your investments on your behalf. So you've got the 0:05:57.930 --> 0:06:01.500 safety and comfort in knowing that your pension is invested 0:06:01.500 --> 0:06:05.430 by an expert. It's managed and it's looked after. It's 0:06:05.430 --> 0:06:08.279 not guaranteed in terms of it may still go down 0:06:08.279 --> 0:06:11.790 because in investments markets, you do get turbulence and you 0:06:11.790 --> 0:06:14.460 do get volatility in the shorter term. But over the 0:06:14.460 --> 0:06:19.710 longer term, equities, for example, they've proven typically to outperform 0:06:19.890 --> 0:06:21.240 cash savings accounts. 0:06:21.390 --> 0:06:24.270 So when it comes to your pension, especially the workplace 0:06:24.270 --> 0:06:26.940 pension, is it best to leave the investing decisions to 0:06:26.940 --> 0:06:30.390 the experts and use the default fund that your pension 0:06:30.390 --> 0:06:31.320 company offers? 0:06:31.980 --> 0:06:36.599 So, generally, default funds are most appropriate for the majority 0:06:36.600 --> 0:06:39.810 of investors. However, if you do want to take that 0:06:39.810 --> 0:06:43.589 little bit of extra risk, there are different investment options 0:06:43.589 --> 0:06:46.410 available for you, and the best way to find out 0:06:46.589 --> 0:06:49.650 what they are is by going onto your pension account 0:06:49.650 --> 0:06:53.159 online, or you might actually have received an investment guide 0:06:53.160 --> 0:06:56.250 or an investment brochure, which will tell you exactly the 0:06:56.250 --> 0:06:59.640 different types of investments that are available to you. So 0:06:59.640 --> 0:07:02.850 firstly, you want to really check, does this default fund 0:07:02.910 --> 0:07:07.020 really meet my needs in terms of my expected retirement 0:07:07.020 --> 0:07:10.770 outcomes, my level of risk and my attitude towards risk, 0:07:11.400 --> 0:07:14.220 or should I choose my own investments? One of the 0:07:14.220 --> 0:07:16.350 most important things to say though is if you do 0:07:16.350 --> 0:07:18.900 go ahead and choose your own investments, it's a bit 0:07:18.900 --> 0:07:21.420 like you are now on your own. So those investments 0:07:21.420 --> 0:07:25.020 don't change throughout time. If you choose to be, say, 0:07:25.020 --> 0:07:28.260 a hundred percent invested into one of those equity funds 0:07:28.260 --> 0:07:32.130 that we talked about where it's buying money in companies across 0:07:32.130 --> 0:07:35.400 the world, then it will stay invested in that fund 0:07:35.580 --> 0:07:38.940 until you review it or until you make an investment change. 0:07:39.210 --> 0:07:40.950 That's a really good point that you make there. I think, 0:07:41.400 --> 0:07:43.710 yeah, if you make that change, now you've kind of 0:07:43.710 --> 0:07:46.290 committed to being hands- on to your pension until you 0:07:46.290 --> 0:07:47.610 get to the point where you draw down on it. 0:07:48.510 --> 0:07:50.700 We've touched on it a bit because you explain the 0:07:50.700 --> 0:07:53.490 different types of assets that are available, but can you, 0:07:53.760 --> 0:07:57.600 just for our listeners, explain diversification in simple terms? Because 0:07:57.600 --> 0:08:01.170 we hear diversifying your risk, diversifying your investments, but can 0:08:01.170 --> 0:08:03.420 you explain it in simple terms and what this means 0:08:03.420 --> 0:08:05.790 for not just your pension, but also other savings as well? 0:08:06.360 --> 0:08:11.220 Definitely. So diversification, in its simplest terms, is not putting 0:08:11.280 --> 0:08:14.460 all of your eggs into one basket, so not going 0:08:14.640 --> 0:08:17.760 all in on equities or all in into a bond 0:08:17.760 --> 0:08:20.760 fund. So if you think about it a bit like 0:08:20.790 --> 0:08:24.090 going to a buffet, so actually at a buffet you 0:08:24.090 --> 0:08:26.520 would go and try a few different types of food, 0:08:27.030 --> 0:08:30.540 and the chances are then that if there's one part 0:08:30.540 --> 0:08:32.880 of that meal that you don't like, then there are 0:08:32.880 --> 0:08:34.800 going to be other options available to you that you 0:08:34.800 --> 0:08:37.740 will like, ultimately. So that's the first thing. And the 0:08:37.740 --> 0:08:41.280 other thing I would say is that you should probably 0:08:41.280 --> 0:08:43.740 have a balanced diet as well. So not just all 0:08:43.740 --> 0:08:47.580 about pension savings, you probably want to diversify where your 0:08:47.580 --> 0:08:50.970 savings are invested, because they all serve a different purpose. 0:08:50.970 --> 0:08:54.480 So pensions for example, saving into a pension is going 0:08:54.480 --> 0:08:57.120 to help you towards saving for retirement. But then if 0:08:57.120 --> 0:08:59.520 you've got medium- term savings goals, you might want to 0:08:59.520 --> 0:09:02.520 invest in something like a stocks and shares ISA, or 0:09:02.520 --> 0:09:03.300 have a cash ISA. 0:09:03.630 --> 0:09:06.300 Michael, you are the expert that we needed for this 0:09:06.300 --> 0:09:10.559 to break it down. We're going a bit further now. 0:09:11.460 --> 0:09:16.199 We hear the words active and passive, and whenever I 0:09:16.200 --> 0:09:18.960 think about it in non- financial terms, I'm thinking about 0:09:19.140 --> 0:09:20.910 if I'm in the gym, I'm active, if I'm sitting 0:09:20.910 --> 0:09:23.550 at home on a sofa, I'm passive. But these have 0:09:23.640 --> 0:09:26.850 slightly different meanings when it comes to investments. So what's 0:09:26.850 --> 0:09:30.240 the difference between a fund that's actively managed versus one 0:09:30.240 --> 0:09:31.650 that's passively managed? 0:09:32.460 --> 0:09:35.400 So an active fund is where you have a fund 0:09:35.400 --> 0:09:40.050 manager that is actively looking to find different investment types 0:09:40.050 --> 0:09:43.140 or investment opportunities. So they would go out and they 0:09:43.140 --> 0:09:45.630 would research companies. So if you're talking about an equity 0:09:45.630 --> 0:09:48.929 fund, they'd go out and research the companies and then 0:09:48.929 --> 0:09:52.620 identify those that they want to put into their investment 0:09:52.620 --> 0:09:56.370 fund. So for a passive fund, that's where an investment 0:09:56.370 --> 0:10:00.330 manager or a fund manager would invest into every company 0:10:00.330 --> 0:10:03.270 that is listed on a particular stock exchange or within 0:10:03.270 --> 0:10:06.570 an index. So if you invest in a UK equity 0:10:06.570 --> 0:10:10.590 index fund, let's say, the index is the FTSE All- 0:10:10.590 --> 0:10:13.439 Share. Now that is made up of the top 600 0:10:13.440 --> 0:10:18.390 companies within the London Stock Exchange, which is about 2000 0:10:18.390 --> 0:10:21.870 companies. What your passive fund tries to do is it 0:10:21.870 --> 0:10:25.679 tries to match the performance of all of those companies. 0:10:25.950 --> 0:10:28.469 So it will hold those companies based on their relative 0:10:28.470 --> 0:10:30.990 value, and then you'll see your fund go up and 0:10:30.990 --> 0:10:34.470 down depending on how all of those companies in combination 0:10:34.470 --> 0:10:39.630 perform. So active funds tend to hold less companies or 0:10:39.630 --> 0:10:43.350 less investments, which might mean that it has a greater 0:10:43.350 --> 0:10:46.140 amount of risk that we talked about because it's less 0:10:46.200 --> 0:10:50.429 diversified, but a passive fund, because it would hold more 0:10:50.429 --> 0:10:55.620 of those companies or investments, it will be potentially less 0:10:55.620 --> 0:10:58.500 risky. But that's not to say that it wouldn't go 0:10:58.500 --> 0:10:59.220 down in value. 0:10:59.550 --> 0:11:02.579 I'm interested then, off the back of that, or the active 0:11:02.580 --> 0:11:05.340 fund, because there is someone who's actively going out there 0:11:05.340 --> 0:11:08.760 and researching, is there a difference between the two funds, 0:11:08.760 --> 0:11:10.650 for example, maybe in the fees because you have someone 0:11:10.650 --> 0:11:11.970 who's actively working on that? 0:11:11.970 --> 0:11:15.510 So active funds tend to hold a bit more of 0:11:15.510 --> 0:11:17.610 an investment cost to them. So there are fees that 0:11:17.610 --> 0:11:19.830 are charged as a result of it, which it's either 0:11:19.830 --> 0:11:22.890 called an investment management charge or a fund management charge, 0:11:23.340 --> 0:11:26.760 because they are having to go out, meet with companies, 0:11:27.300 --> 0:11:30.600 they're having to do their investment research, they have analysts 0:11:30.600 --> 0:11:34.350 that do all of the investigation and research, whereas a 0:11:34.350 --> 0:11:38.520 passive fund, there's much more automation that's involved. So as 0:11:38.520 --> 0:11:41.460 it tries to track the performance of companies, it will 0:11:41.460 --> 0:11:43.830 buy and sell those companies based on how they perform 0:11:43.830 --> 0:11:46.679 on a daily basis, which is far more automated, and 0:11:46.679 --> 0:11:48.569 as a result, they tend to be a bit cheaper. 0:11:48.780 --> 0:11:51.270 Okay, that's good to know. Thank you so much. When 0:11:51.270 --> 0:11:53.970 you're looking at your pension savings and investments, can you 0:11:53.970 --> 0:11:57.780 see which companies your money's actually invested in? Can you 0:11:57.780 --> 0:11:59.880 see the breakdown or is it more of like an 0:11:59.880 --> 0:12:01.530 overview of where your money is? 0:12:01.530 --> 0:12:04.469 So the first thing you probably want to do is 0:12:04.470 --> 0:12:08.550 log into your pension account online. That's if your pension provider 0:12:08.550 --> 0:12:12.059 or your pension scheme has that facility available. If you 0:12:12.059 --> 0:12:14.490 don't know who your pension provider is, the best thing 0:12:14.490 --> 0:12:16.559 to do is go and speak to your HR department 0:12:16.679 --> 0:12:19.079 and they will point you in the right direction. But 0:12:19.080 --> 0:12:21.689 once you've been able to register and you've got access 0:12:21.690 --> 0:12:24.390 online, you can then see where your money is invested. 0:12:24.390 --> 0:12:27.780 So what's the default fund that it holds? Typically, there's 0:12:27.780 --> 0:12:32.280 also an investment guide that comes alongside your pension. So 0:12:32.280 --> 0:12:34.260 you want to have a read of that pension guide 0:12:34.260 --> 0:12:37.380 or the investment guide to find out what's the investment 0:12:37.380 --> 0:12:40.740 strategy. Once you've identified that, if you want to even 0:12:40.740 --> 0:12:43.650 delve a little bit deeper and really find out whereabouts 0:12:43.710 --> 0:12:48.059 your pension savings are invested, pension schemes tend to offer 0:12:48.059 --> 0:12:51.780 something called a fund fact sheet. And a fund fact 0:12:51.780 --> 0:12:54.870 sheet is basically just telling you what's the name of 0:12:54.870 --> 0:12:58.710 the fund, what's its objective, where is it invested, how 0:12:58.710 --> 0:13:01.440 is it performed, what's its level of risk as well, 0:13:01.860 --> 0:13:03.929 and you might even get to see the top 10 0:13:03.929 --> 0:13:06.690 holdings of a fund. So it might be invested in 0:13:06.690 --> 0:13:11.550 the top 10 companies within the FTSE 100, for example. Also, 0:13:11.550 --> 0:13:13.800 the other thing to note is that if you're invested 0:13:13.800 --> 0:13:16.320 in one of these passive funds, the chances are you're 0:13:16.320 --> 0:13:18.809 going to be invested in all of those companies that 0:13:18.809 --> 0:13:20.490 will be held within that index. 0:13:20.940 --> 0:13:24.000 That's good to know. So Michael, the stock market has 0:13:24.000 --> 0:13:27.570 seen a dramatic ride in recent years, so should people 0:13:27.570 --> 0:13:30.330 be worried that their pension savings won't grow very well, 0:13:30.630 --> 0:13:32.640 or that it might be better to save their money 0:13:32.640 --> 0:13:34.679 in a savings account or a cash ISA? 0:13:34.950 --> 0:13:37.080 The last few years, we've seen quite a lot of 0:13:37.080 --> 0:13:39.630 market turbulence, as we would call it. So that's where 0:13:39.630 --> 0:13:42.660 investment markets have gone up and down. Now that's been 0:13:42.660 --> 0:13:45.839 as a result of Brexit. We've had the Russian war 0:13:45.840 --> 0:13:49.530 in Ukraine. We've had a lot of political uncertainty, and also COVID 0:13:50.190 --> 0:13:54.540 as well. So these have been unprecedented times, really. But 0:13:54.540 --> 0:13:57.570 the main thing to note is that your pension savings, 0:13:58.050 --> 0:14:00.240 they're a long- term investment, so you're investing for a 0:14:00.240 --> 0:14:04.800 long time, over 30, 40 years. So it's important that you 0:14:04.800 --> 0:14:07.890 don't make any rash decisions. You might expect to see 0:14:07.890 --> 0:14:11.370 your pension savings go down in the short term, but 0:14:11.370 --> 0:14:14.339 history shows us that over the long term, they tend 0:14:14.340 --> 0:14:18.179 to do quite well from a performance perspective. But again, 0:14:18.210 --> 0:14:21.300 not guaranteed, can still go down and you might actually 0:14:21.300 --> 0:14:24.630 get back less than you put in, but typically, they 0:14:24.630 --> 0:14:25.170 will grow. 0:14:25.530 --> 0:14:29.280 When it comes to fees and charges, I know we 0:14:29.280 --> 0:14:32.100 touched on it a little bit, but what are the 0:14:32.100 --> 0:14:35.700 fees and charges that we can expect on pension savings, 0:14:35.700 --> 0:14:38.880 and how do they differ across different fund types? 0:14:39.120 --> 0:14:40.980 There are lots of different types of fees, and they 0:14:40.980 --> 0:14:44.040 might be charged in different ways, but typically the two 0:14:44.040 --> 0:14:46.770 main ones are investment fees that we talked about earlier, 0:14:46.770 --> 0:14:50.040 or a fund management charges, and then there's also an 0:14:50.040 --> 0:14:54.240 administration fee. So this is the cost of the operational 0:14:54.240 --> 0:14:57.990 servicing of your pension scheme as you change your address 0:14:57.990 --> 0:14:59.790 or whatever it might be that you're getting in touch 0:14:59.790 --> 0:15:04.380 with your pension administrator for. Investment charges can differ between 0:15:04.470 --> 0:15:07.320 investment types as well. So the active funds that we 0:15:07.320 --> 0:15:09.810 talked about earlier, they can tend to be slightly more 0:15:09.810 --> 0:15:13.860 expensive. Passive funds can be slightly cheaper, and they also 0:15:13.860 --> 0:15:18.000 differ across different investment types. There are some other charges. 0:15:18.060 --> 0:15:22.140 You have something called additional fund expenses and transaction costs. 0:15:22.230 --> 0:15:24.960 It's important that you know that these aren't charged by the pension scheme 0:15:24.960 --> 0:15:27.480 provider or by the fund manager. They're the cost of 0:15:27.480 --> 0:15:31.830 buying and selling the investments. So it's important that you 0:15:31.830 --> 0:15:35.070 don't frequently switch funds. So when we talked about earlier, 0:15:35.460 --> 0:15:37.890 can you choose a different investment from the default? Yes, 0:15:37.890 --> 0:15:41.340 you absolutely can, but you incur a cost as a 0:15:41.340 --> 0:15:45.630 result of switching, and frequently switching is going to eventually 0:15:45.840 --> 0:15:47.820 reduce the amount of money that you have at the 0:15:47.820 --> 0:15:50.460 end when you come to retire. And an example of 0:15:50.460 --> 0:15:53.640 that is like baking a cake. So if you go 0:15:53.640 --> 0:15:56.280 to bake a cake and you're constantly opening the oven 0:15:56.280 --> 0:15:59.220 door, you're letting some of that hot air out and 0:15:59.220 --> 0:16:01.290 it might not rise as much as you might expect. 0:16:01.590 --> 0:16:04.860 So keep that door closed, let the oven do its 0:16:04.860 --> 0:16:07.260 thing, and then you can experience what the cake is 0:16:07.260 --> 0:16:09.930 like once you open it and the time finishes. But it 0:16:09.930 --> 0:16:12.570 is important to say that different ovens, so if we 0:16:12.570 --> 0:16:15.840 think about ovens as the investment types, different ovens would 0:16:15.840 --> 0:16:17.760 cook at different speeds and you might get a different 0:16:17.760 --> 0:16:20.550 outcome each time, and you're not always guaranteed to get 0:16:20.550 --> 0:16:21.480 back what you put in. 0:16:21.480 --> 0:16:24.180 Michael, you have some of the best analogies that I've 0:16:24.180 --> 0:16:27.330 come across when it comes to explaining difficult financial jargon. 0:16:27.810 --> 0:16:30.150 Keep going. I always want to just ask you more 0:16:30.150 --> 0:16:32.520 questions so you can give me more analogies. That is great. 0:16:32.550 --> 0:16:33.030 I've got more. 0:16:33.660 --> 0:16:35.550 I know you've got them loaded up. It was good. 0:16:36.090 --> 0:16:38.640 But before we end this episode, because you've shared so 0:16:38.640 --> 0:16:41.910 many amazing tips, can you share our listeners your top 0:16:41.940 --> 0:16:44.580 three tips on workplace pension investments? 0:16:44.820 --> 0:16:48.450 Yep, absolutely. So it's important to remember that pensions are 0:16:48.450 --> 0:16:51.390 a long- term investment. Don't make any rash decisions. You 0:16:51.390 --> 0:16:53.280 might expect to see it go up and down, so 0:16:53.340 --> 0:16:57.180 don't react based on short- term changes. Secondly, the sooner 0:16:57.180 --> 0:16:59.850 you start saving, the more time that you give for 0:16:59.850 --> 0:17:02.520 your investments to grow, and it's important that you start 0:17:02.610 --> 0:17:05.250 early. And then finally, can you save a little bit 0:17:05.250 --> 0:17:07.619 more? So are you making the most of that employer 0:17:07.619 --> 0:17:10.800 matching contribution? Can you add a little bit extra in? 0:17:11.070 --> 0:17:13.230 Or as you get a salary increase, maybe you might 0:17:13.230 --> 0:17:16.470 be lucky enough to get a pay rise, could you put a 0:17:16.470 --> 0:17:20.310 little bit of that towards your pension savings? Ultimately, putting 0:17:20.310 --> 0:17:22.950 a little bit more aside today or sacrificing a little 0:17:22.950 --> 0:17:25.619 bit today will only benefit you when you come to retiring. 0:17:27.240 --> 0:17:30.090 Michael, thank you so much for coming onto the podcast. 0:17:30.330 --> 0:17:33.660 You have been incredible breaking down workplace pensions in such 0:17:33.660 --> 0:17:36.449 simple terms for us to understand. Between your episode and 0:17:36.450 --> 0:17:39.030 the two episodes with Kim, I think we have got 0:17:39.119 --> 0:17:42.180 pensions down to a tee. So thank you so, so much. 0:17:42.720 --> 0:17:43.050 Thanks. 0:17:43.920 --> 0:17:46.409 There's lots of useful information to help us get engaged 0:17:46.410 --> 0:17:49.650 and grow our workplace pension. Next time, we're talking all 0:17:49.650 --> 0:17:52.920 about parenting and finances with Charlotte Jessup from Looking After 0:17:52.920 --> 0:17:55.230 Your Pennies. I'd love it if you could review the 0:17:55.230 --> 0:17:58.950 podcast, spread the word, and help others get a little bit richer too. 0:17:59.220 --> 0:18:02.160 Keep up with the show on TikTok and Instagram at Legal & General. 0:18:02.700 --> 0:18:04.379 Thank you for listening. See you soon.