Kia: Hi, it's Kia here. Paying into your workplace pension gets you extra money from
Kia: your employer and the government, and a strong start can
Kia: have surprisingly big benefits thanks to the power of compounding.
Kia: Saving relatively small amounts in your 20s and early 30s is the best
Kia: route to being a little bit richer when you retire.
Kia: Welcome to another episode of A Little Bit Richer, brought
Kia: to you by my friends at Legal & General. We've unpacked
Kia: why workplace pensions matter so much in episode three of
Kia: the podcast. Today, Legal & General's workplace pensions expert, and a
Kia: friend of the show, Kim Brown, is back to help
Kia: us get the most out of our pensions. Welcome back, Kim.
Kim Brown: Thanks, Kia.
Kia: So, Kim, firstly, let's recap. What do we mean by
Kia: a workplace pension, and what are the benefits of this
Kia: type of pension?
Kim Brown: Yeah, so if we start by looking at the state pension,
Kim Brown: to put it into context. So, the state pension is
Kim Brown: paid for weekly by the government. It starts at age
Kim Brown: 66 now, which will be going up, might be later
Kim Brown: for many that are listening. Your amount that you get
Kim Brown: from the government per week will be dependent on a
Kim Brown: number of factors, including the level of national insurance you
Kim Brown: pay throughout your working career. But if we take the
Kim Brown: figures from April, it's 11,500 pounds maximum a year of
Kim Brown: state pension. So, I think for many that might be
Kim Brown: perceived as quite a modest amount to live on, particularly
Kim Brown: people that are going to still be paying off a
Kim Brown: mortgage or paying into rent. And if that is true
Kim Brown: for your circumstances, you think you'll need more than 11,500,
Kim Brown: you want to think about topping that up. And that
Kim Brown: can be through a private pension or through a workplace
Kim Brown: pension. Your question then on the benefits of workplace pensions,
Kim Brown: there's two I particularly highlight on top of the already
Kim Brown: amazing thing that you're doing, which is thinking about your
Kim Brown: future and putting money aside for it. One is that
Kim Brown: your employer has to contribute. At least 3% of your
Kim Brown: salary from your employer goes into your pension. That might
Kim Brown: be higher, your employer might offer more, but also some
Kim Brown: employers do contribution matching, so if you pay higher than
Kim Brown: your statutory minimum, they'll pay higher than they have to.
Kim Brown: So, that's definitely worth exploring. And I think when we
Kim Brown: last met, you really well described it as a deferred pay.
Kia: Yes.
Kim Brown: They're paying your salary today, the pension is then putting
Kim Brown: money away for when you've stopped working. And I really
Kim Brown: love that and that's something that people can take advantage
Kim Brown: of. The second benefit of a workplace pension then, is that
Kim Brown: you get tax relief. So, you get money from the
Kim Brown: government. So, if you want to put 100 pound a
Kim Brown: month into your pension, you only have 80 pounds taken
Kim Brown: from your salary. The 20 pound comes from the government
Kim Brown: in the form of tax relief. The caveat, the difference
Kim Brown: of a workplace pension, besides saving, for example, into an
Kim Brown: ISA, is you can't then touch that money till later.
Kim Brown: It's for your retirement. So currently, at age 55, you
Kim Brown: could access that. Again, that will be going up, but
Kim Brown: might be later for those listening.
Kia: I think it's really great and I love covering workplace
Kia: pensions, because pensions in general, as a topic, when you're
Kia: young, 20, 30, even sometimes early 40s, you think that's so
Kia: long away. But as we mentioned, it's so important to think
Kia: about that. So, what happens to the money that is
Kia: saved in a pension?
Kim Brown: So, at the highest level, your money's invested. It's invested with
Kim Brown: the aim of growing over the time. So, your employer
Kim Brown: will pick a company, like Legal & General, someone that can
Kim Brown: invest and manage your money. Your money will be held
Kim Brown: for you in a pot, but it'll be pulled together
Kim Brown: with others and invested. So, your money will be used
Kim Brown: to buy stuff, to buy assets, with that objective of
Kim Brown: growing over time. And it grows either because the assets
Kim Brown: grow in value, or because they're paying money back into
Kim Brown: the scheme. And what that fund manager would be doing
Kim Brown: on your behalf, is selecting the assets, so that could
Kim Brown: be shares, so bits of companies, they could be looking at
Kim Brown: bonds, cash, property. So, your money's not sat there in
Kim Brown: cash, it's being invested to grow, which is why it's
Kim Brown: a job for the expert. And because of pulling together
Kim Brown: with others, you're able to better spread that risk. You'll
Kim Brown: be invested in different countries, in different assets that are, again,
Kim Brown: looking to generate that growth over time.
Kia: Amazing. I think in general, investing can seem very daunting,
Kia: especially pension investing, but I think when you put it
Kia: there, it makes sense especially because, as I mentioned, we're
Kia: not going to touch that for a long time. So,
Kia: you want to put it away and help it, hopefully,
Kia: for it to grow so you can get back more
Kia: than you initially put in. And that's always the aim.
Kia: So, Kim, pension investments feel like a very daunting topic
Kia: for some, so can you explain a little bit more
Kia: for us?
Kim Brown: I can really appreciate that. I think they can feel
Kim Brown: daunting because investments can go up and down, and the
Kim Brown: value of your pension pot can, but I think if
Kim Brown: you think about it like if you bought a flat
Kim Brown: in London in the '80s, and if you're looking at
Kim Brown: the price of that flat now, it probably has gone
Kim Brown: up over time. That's the same goal as your pension.
Kim Brown: And if you look every day or every week, you
Kim Brown: will find that it moves up and down, but the
Kim Brown: goal is to generate returns over the longer term. I
Kim Brown: think the flip side of thinking about it as being
Kim Brown: daunting, is to think about how much power there is
Kim Brown: in pensions as well, and I mean that in two
Kim Brown: ways. So, we talked about owning shares, so owning bits
Kim Brown: of companies. As a result, Legal & General, fund managers, as
Kim Brown: well as members can have the right to vote and
Kim Brown: express their opinion on certain decisions that those companies make.
Kim Brown: That might be in relation to whether they're paying the
Kim Brown: living wage, executive pay or their approach and treatment on
Kim Brown: climate. And it's a really interesting way of indicating to those
Kim Brown: companies what their investors care about and starting to shift
Kim Brown: the dial on big strategic issues. So, for example, Legal &
Kim Brown: General recently voted in favor of getting increased transparency around
Kim Brown: how Apple are using AI and their ethical guidelines around
Kim Brown: it. And as I say, it's just a really powerful way
Kim Brown: of indicating the ways that members feel, as well as
Kim Brown: fund managers voting. The second really powerful way, I think,
Kim Brown: is you can choose where your money is invested if you wish
Kim Brown: to. So, you can take greater risk, but you can
Kim Brown: also pick funds that are more aligned to your ethical
Kim Brown: views, to pick sustainability funds, pick those that have religious
Kim Brown: beliefs that align with yours. So, I appreciate that people
Kim Brown: can be daunted by some aspects. I hope there's also
Kim Brown: some really interesting elements in there, and the more you get
Kim Brown: to know, I think the less daunting and the more
Kim Brown: interesting they become.
Kia: I absolutely agree. I think this podcast is a testament to it, that
Kia: knowledge is power and you feel more confident and more
Kia: empowered the more you know, so it's really good to
Kia: hear that. This is the age- old question, Kim. It's
Kia: all about how much should you be putting in your
Kia: pension. So, I'm going to ask you. What percentage of
Kia: someone's salary is ideal that someone should be putting away
Kia: every month? And if someone is in their 20s and 30s, like I
Kia: mentioned, it seems so far away, is it something that
Kia: they should even be worrying about right now?
Kim Brown: It's a great question and I wish I had a
Kim Brown: singular answer for you, a right or wrong answer to
Kim Brown: this question, but the amount that you should be contributing
Kim Brown: is based on you. It's based on what's affordable, but
Kim Brown: it's also based on when you want to retire and
Kim Brown: what that retirement looks like. So, my best advice would
Kim Brown: be to use some of the tools available to help
Kim Brown: you plan. There's some brilliant free resource. If you go
Kim Brown: onto Money Helper, they've got a retirement planner, you can
Kim Brown: put in details about what you earn, when you want
Kim Brown: to retire, as I say. And they'll show you your
Kim Brown: projected income at retirement, but they've also got good sliders
Kim Brown: that you can adjust. What happens if I pay more?
Kim Brown: What happens if I retire later? Companies like ours, like
Kim Brown: Legal & General, will have similar things, retirement planner tools, so
Kim Brown: get on one of those free tools through your pension
Kim Brown: provider, or generally available, and just look and think about
Kim Brown: it. And your point on younger savers. It's so true.
Kim Brown: Save as much as you can as early as you
Kim Brown: can, because that money has a really long amount of
Kim Brown: time to work for you.
Kia: Amazing. I think that's really important, like you said, and
Kia: I'm not too far away. So, 30 years is approaching
Kia: for me, it's coming. Is there a certain amount that
Kia: people like myself, around that age, should aim to have in their pension pot?
Kim Brown: I thought you're saying you're not that far away from retirement.
Kia: No. Oh my gosh, no.
Kim Brown: No, not quite.
Kia: Not quite.
Kim Brown: Not too far away from 30, okay.
Kia: From 30.
Kim Brown: I think it's worth looking at and thinking now, but
Kim Brown: I would just regularly review it. So, I think what
Kim Brown: can be really important is when you get a pay
Kim Brown: increase, before you get used to that money in your
Kim Brown: pocket, log back onto one of those planners, think about
Kim Brown: the difference it could make over the longer term if
Kim Brown: you invest. Same is true if you get a bonus.
Kim Brown: It's a really tax- efficient way of using your bonus
Kim Brown: money. And again, before it goes in your pocket, think
Kim Brown: about retirement you and what that could mean then.
Kia: That's good, I think I've said this before. Pina Colada
Kia: on the beach, I'm going to have that in mind
Kia: when I'm thinking about my pension. That's really good. So then,
Kia: Kim, what information do you suggest that people check with
Kia: their pension savings? And what should they be keeping an
Kia: eye on, and more importantly, how frequently?
Kim Brown: So, I think people should look at their pension every day.
Kia: Imagine, every single day, pull it up.
Kim Brown: No, you're absolutely right. Pensions are a long- term investment,
Kim Brown: it's not a daily thing, it's not like your bank
Kim Brown: account. I think what's important is getting it right at
Kim Brown: the start. And that can be when you start a new job, that
Kim Brown: can be today, for instance. If you're enjoying this podcast,
Kim Brown: you're interested in pensions, start today and think about, do
Kim Brown: you know where your money is invested? How much are
Kim Brown: you putting in? Have you nominated your death beneficiary?
Kia: A big one.
Kim Brown: Yeah, it's a big one. Make sure that we know
Kim Brown: who you want to get your benefits if you do
Kim Brown: pass. All those things are really, really key. And including
Kim Brown: there, are we saving enough? So, I think that's it. Get it
Kim Brown: right. And then, how frequently? I think annually feels about
Kim Brown: right. Once a year, pay your pension some attention. Go
Kim Brown: back in, check some of those assumptions, and make sure
Kim Brown: you're on track for the retirement you've been picturing. And
Kim Brown: then lastly, I just think it's really important to do
Kim Brown: it when there's a life event, particularly if you're taking
Kim Brown: a career break. I think most people are familiar with
Kim Brown: the gender pay gap. There's also a gender pensions gap,
Kim Brown: where Legal & General research has shown that women are retiring
Kim Brown: with half the pension of men. So, if you are
Kim Brown: going on maternity leave, same could be true for paternity,
Kim Brown: really do think about the impact it can have, not
Kim Brown: just on your pocket today, but on your future. The
Kim Brown: other area, actually, it's in divorce. Again, Legal & General have
Kim Brown: done some research in this area, and a third of
Kim Brown: women on divorce are waiving their right to their partner's
Kim Brown: pension. And it can be a really sizable asset. Sometimes
Kim Brown: it's the second- biggest behind, say, a house. So, it's
Kim Brown: really important to be aware and think about it and
Kim Brown: take it into consideration.
Kia: You've touched on a lot of good points there. I
Kia: think one I want to circle back on is when
Kia: you mentioned nominating beneficiaries.
Kim Brown: Yeah.
Kia: That's a big one. I had some people close to
Kia: me lost family members, but because their family member didn't
Kia: nominate beneficiaries, it was a round the house thing, trying
Kia: to figure out where's the pension, how can we get
Kia: it, can we access it? And when you are going
Kia: through that process, something like that where you've lost someone
Kia: and you're grieving, having to do all that work in
Kia: admin isn't really something that is on top of your mind
Kia: and you shouldn't have to be doing that. So, it is very
Kia: important, when you review, to make sure that you're checking everything
Kia: and make it easier if that time does come. Obviously,
Kia: we hope that you can draw your own pension, but if
Kia: you do need to pass it on, make sure that
Kia: is covered.
Kim Brown: I couldn't agree more. It's not part of the estate,
Kim Brown: so it will be covered separately. You can do it
Kim Brown: online now at Legal & General, and you can view it
Kim Brown: online. And I think that's really helpful in just ensuring
Kim Brown: that you've taken those right steps.
Kia: I absolutely agree. So, you touched on it a little
Kia: bit there, Kim, but what happens to your workplace pension
Kia: if you move jobs? I'm sure there's many people out
Kia: there, myself included, you've gone from one job to another,
Kia: you contributed here and there, so what happens to those pensions? Do
Kia: they just disappear into the ether and we never see
Kia: them again? Or is the money sitting there? What happens
Kia: to them?
Kim Brown: Your pension is your money. So, if you move jobs,
Kim Brown: you can move your pension with it. And I think
Kim Brown: pension consolidation is really worth considering. You want to look
Kim Brown: at the costs and charges you're paying in your different
Kim Brown: pots and make sure that it makes financial sense to
Kim Brown: consolidate. But it can help. And I think wider than
Kim Brown: that, is thinking about the value of having all your
Kim Brown: money in one spot. If a key thing to do
Kim Brown: annually is just check you're on track, if you're checking
Kim Brown: one pot and that's all in one place for you,
Kim Brown: it's a lot easier for you to picture your future
Kim Brown: and see what it could look like than having multiple
Kim Brown: pots. So, I think for that reason in particular, it's
Kim Brown: helpful to think about scheme consolidation.
Kia: Amazing. Kim, before we end, because this has been great,
Kia: what are your top three tips on workplace pensions?
Kim Brown: So, my top three, particularly on your focus on those
Kim Brown: in their 20s and early 30s, I think save as
Kim Brown: much as you can for as early as you can.
Kim Brown: Really make that money work for you. I think the
Kim Brown: second is that, pay your pension some attention. Understand where
Kim Brown: your money is, annually think about it, think about consolidation.
Kim Brown: Check it's right for you, but I think it helps
Kim Brown: in making sure you're on track for the retirement that you
Kim Brown: want when you want it. And the third, I think,
Kim Brown: is talk about pensions, talk about finance. I feel like
Kim Brown: we really do have a gap in this country. I
Kim Brown: see it amongst my friends, let alone people younger than
Kim Brown: me. So, if you've enjoyed this today, if you've got
Kim Brown: something from it, share it with a friend, share it
Kim Brown: with a colleague, talk to them about money.
Kia: Absolutely agree. Financial education is so important, but I think
Kia: the good thing we want to end on is, pay
Kia: your pension some attention. I like that one. Kim, thank
Kia: you so much, as always. You've come back and you've
Kia: graced the podcast with amazing gems. So, I hope everyone
Kia: listening is going to be pulling up their workplace pension
Kia: and reviewing it, because that's what we need to be
Kia: doing. Next time, we're delving into debt and have helpful
Kia: tips on how to manage it. I'd love it if
Kia: you shared the podcast, tell a mate, leave a review,
Kia: and help other people start getting a little bit richer.
Kia: And if there's anything you'd like me to discuss on
Kia: future episodes, get in touch via Legal & General's Instagram and TikTok channels.
Kia: You can also see some fun behind the scenes videos,
Kia: and exclusive tips from a range of our experts. A
Kia: Little Bit Richer is brought to you by Legal & General.
Kia: Thank you for listening and see you soon.