WEBVTT - Workplace Pensions: Changes and Why It Matters 0:00:00.270 --> 0:00:02.940 This series is brought to you by L& G, helping 0:00:02.940 --> 0:00:04.980 you build a future that's a little bit richer. 0:00:07.050 --> 0:00:10.170 Hello, I'm Iona Bain and welcome along to A Little 0:00:10.170 --> 0:00:13.710 Bit Richer, brought to you by Legal & General. Today we're 0:00:13.710 --> 0:00:16.350 touching on workplace pensions, and that's because they've been in 0:00:16.350 --> 0:00:19.738 the news recently. There's some changes coming down the track, 0:00:19.770 --> 0:00:22.650 including where some of your money is invested and what 0:00:22.650 --> 0:00:25.620 happens to those small pots you build up as you 0:00:25.620 --> 0:00:28.590 move between jobs. So we wanted to bring in an 0:00:28.590 --> 0:00:31.500 expert from L& G as they are the largest provider 0:00:31.500 --> 0:00:35.610 of defined contribution and workplace pension savings in the UK. 0:00:36.120 --> 0:00:38.640 Paula Llewellyn heads up the team there, so she is 0:00:38.640 --> 0:00:41.940 very well- placed to outline what's in the pipeline, why 0:00:41.940 --> 0:00:45.300 it's important for your future. Welcome Paula. 0:00:45.510 --> 0:00:46.019 Thank you. 0:00:46.110 --> 0:00:49.530 So Paula, there are some changes happening to workplace pensions 0:00:49.530 --> 0:00:52.830 that people might have been hearing about recently. Can you 0:00:52.830 --> 0:00:54.450 tell us a little bit more about what they are? 0:00:54.540 --> 0:00:58.560 Yeah, so look, pensions are really important for the standard 0:00:58.560 --> 0:01:01.170 of living that people need to have in their retirement, 0:01:01.500 --> 0:01:04.140 and that's why the government really takes a lead on 0:01:04.140 --> 0:01:06.750 all things pension to make sure that people are getting 0:01:06.750 --> 0:01:10.708 the best outcome that they want. So they're introducing some 0:01:10.709 --> 0:01:13.740 new rules as part of a review that they've done. 0:01:13.830 --> 0:01:16.470 So what the specific changes that the government's bringing in? 0:01:17.010 --> 0:01:20.700 So they're bringing in some new rules, which really means 0:01:20.700 --> 0:01:23.610 that it's going to drive better outcomes for the longer 0:01:23.610 --> 0:01:26.160 term for pension savers. But these things are not going 0:01:26.160 --> 0:01:28.740 to happen overnight. They're going to take a number of 0:01:28.740 --> 0:01:32.400 years to roll through. So nothing immediately is changing, but 0:01:32.400 --> 0:01:34.830 will definitely see something over the next few years. 0:01:35.250 --> 0:01:40.319 Interesting. And in particular, changes are happening to small workplace 0:01:40.319 --> 0:01:43.530 pensions. Can you talk us through those? Because an issue that 0:01:43.530 --> 0:01:44.790 affects a lot of people, isn't it? 0:01:44.880 --> 0:01:48.870 It is, yeah, absolutely. And research has shown that people 0:01:48.900 --> 0:01:53.100 have on average 11 jobs over their lifetime. And so 0:01:53.100 --> 0:01:56.580 as they move employer, they're building up these small pots. 0:01:56.970 --> 0:01:58.920 And so what the new rules are going to do 0:01:58.950 --> 0:02:02.279 is bring in the ability for people to combine these 0:02:02.280 --> 0:02:05.400 small pots under a thousand pound. And that's got loads 0:02:05.400 --> 0:02:08.220 of advantages. Number one, it makes it really easy for 0:02:08.220 --> 0:02:12.780 people to manage, but also by combining these pots, you're 0:02:12.780 --> 0:02:17.250 reducing the administration costs and potentially you'll see bigger growth 0:02:17.250 --> 0:02:18.959 of your retirement savings over time. 0:02:19.050 --> 0:02:22.109 That all sounds really good. I think people will be wondering, " 0:02:22.320 --> 0:02:25.260 Do I have a small pension pot?" And maybe they 0:02:25.260 --> 0:02:27.840 do thanks to something called auto enrollment. Could you just 0:02:28.020 --> 0:02:30.930 quickly explain what that is and why it creates these 0:02:30.930 --> 0:02:31.919 small pension pots? 0:02:31.950 --> 0:02:36.060 Auto enrollment basically means that if you are 22 or 0:02:36.060 --> 0:02:40.590 over and earn over 10,000 pounds, you will automatically be 0:02:40.590 --> 0:02:44.610 enrolled into your employer's pension scheme. So if you look 0:02:44.610 --> 0:02:47.760 at how that's made up, there's normally 8% of your 0:02:47.760 --> 0:02:53.070 salary which is invested into that pension scheme. 5% of 0:02:53.070 --> 0:02:57.840 that comes from your salary, so 4% from your contribution 0:02:57.840 --> 0:03:01.230 and 1% as tax relief from the government. And then 0:03:01.230 --> 0:03:03.418 the 3% then comes from your employer. 0:03:03.630 --> 0:03:08.429 So that means that people are contributing to a workplace pension, 0:03:08.430 --> 0:03:11.310 but then when they move on from that job, the 0:03:11.310 --> 0:03:14.100 pension pot doesn't go with them. And that's why you 0:03:14.100 --> 0:03:16.530 can end up building up all these wee pension pots 0:03:16.530 --> 0:03:18.720 and all sorts of places that you might forget about. 0:03:18.780 --> 0:03:19.380 That's right. 0:03:19.500 --> 0:03:21.630 That sounds like it could be a huge problem. 0:03:22.169 --> 0:03:25.500 Yes, and that's exactly why the government is looking at 0:03:25.500 --> 0:03:29.010 this now to really make it easier for pension savers 0:03:29.310 --> 0:03:34.950 to manage their pensions. And I think paying attention to 0:03:35.310 --> 0:03:39.690 your pension is really important, particularly because there's lots of 0:03:39.690 --> 0:03:43.200 things that you need to be thinking about, what your contributions 0:03:43.200 --> 0:03:47.190 are, how your investment is growing over time, etc. And 0:03:47.190 --> 0:03:49.470 lots of companies make it easier now for people to 0:03:49.470 --> 0:03:53.100 do that, whether that's online or through their app. We've 0:03:53.100 --> 0:03:55.500 got a rate app at L& G that allows our 0:03:55.500 --> 0:03:58.740 pension savers to be able to really get involved and 0:03:58.740 --> 0:04:00.360 track what's happening in their pension. 0:04:00.540 --> 0:04:03.000 That's such a simple win, isn't it? To just check 0:04:03.000 --> 0:04:05.880 out your pension providers app, and maybe people don't realize 0:04:05.880 --> 0:04:07.440 that that is something that they can do. 0:04:07.500 --> 0:04:08.490 Yeah, 100%. 0:04:09.030 --> 0:04:12.870 There's been a debate around whether our pensions could be 0:04:12.870 --> 0:04:15.270 used to try and kick- start economic growth. Could you 0:04:15.270 --> 0:04:17.940 talk us through how that might affect pension savers? 0:04:18.000 --> 0:04:21.570 Yeah, absolutely. So people that manage pensions are focused on 0:04:21.570 --> 0:04:24.660 getting really strong growth for their customers and to help 0:04:24.660 --> 0:04:27.150 do this, they invest in companies in the UK as 0:04:27.150 --> 0:04:30.420 well as globally. So in the changes that the government 0:04:30.480 --> 0:04:33.750 have announced, they're keen to see more money from workplace 0:04:33.750 --> 0:04:37.200 pensions being invested in the UK to help support the UK's 0:04:37.710 --> 0:04:41.490 economy and growth. So in May, there was something called 0:04:41.550 --> 0:04:44.490 the Mansion House Accord that really looked at some of 0:04:44.490 --> 0:04:47.520 these changes in the types of areas the pension fund 0:04:47.520 --> 0:04:51.180 managers like Legal & General can invest in. And so pension 0:04:51.180 --> 0:04:55.469 companies have committed to invest at least 10% of the 0:04:55.470 --> 0:04:58.890 money from some of their pension funds into what's called private 0:04:58.890 --> 0:05:02.760 markets. So this covers companies that are not listed on the 0:05:02.760 --> 0:05:05.940 stock exchange. So some of the largest and best- known 0:05:05.940 --> 0:05:08.550 companies in the world are privately owned, and those are 0:05:08.550 --> 0:05:12.539 household names like Aldi and Mars as an example. It 0:05:12.540 --> 0:05:17.310 also covers investment into big building projects. So all of 0:05:17.310 --> 0:05:20.250 that has the aim of boosting the UK economy through 0:05:20.250 --> 0:05:24.900 creating more jobs, growing more businesses, and ultimately, helping people 0:05:24.900 --> 0:05:26.790 grow their retirement savings. 0:05:27.060 --> 0:05:29.430 And there are all sorts of checks and balances like 0:05:29.430 --> 0:05:33.089 trustees for example, that really make sure that the pension 0:05:33.089 --> 0:05:35.969 funds are being invested well on behalf of savers. 0:05:36.029 --> 0:05:39.390 100%. Yeah. And that's again, their duty to make sure 0:05:39.390 --> 0:05:43.260 that the outcomes that we're driving for pension savers are 0:05:43.260 --> 0:05:44.580 the best that they could be. 0:05:45.000 --> 0:05:47.490 People might listen to that and think, well, that sounds 0:05:47.490 --> 0:05:50.400 nice, but I do also want to make sure that 0:05:50.430 --> 0:05:52.560 my pension is going to be there for me and is 0:05:52.560 --> 0:05:54.660 going to get me the growth that I need so 0:05:54.660 --> 0:05:56.790 that I can have the nice retirement that I deserve. 0:05:57.000 --> 0:06:00.750 So what balance is being struck between making sure that 0:06:00.750 --> 0:06:04.200 that money is being invested productively and making sure also 0:06:04.260 --> 0:06:05.790 that people get a good return? 0:06:06.060 --> 0:06:10.050 This Mansion House Accord, how's the call, just helps to give a direction of travel, 0:06:10.050 --> 0:06:13.020 I guess, in terms of balancing what we're doing with 0:06:13.020 --> 0:06:17.130 pension savings as well as investing in the economy. So 0:06:17.339 --> 0:06:21.000 yeah, it's something that pension companies like Legal & General are 0:06:21.000 --> 0:06:25.050 really focused on, but ultimately driving that outcome for pension 0:06:25.050 --> 0:06:28.140 savers is the most important thing. We've seen some of 0:06:28.140 --> 0:06:32.489 these examples in other countries like Australia as an example, 0:06:32.820 --> 0:06:36.900 where similar schemes really invest heavily into these private markets 0:06:37.200 --> 0:06:40.320 and Australian businesses much more than in the UK. So 0:06:40.320 --> 0:06:43.020 there is sort of a precedent already in the markets 0:06:43.020 --> 0:06:45.330 of how to do this, and that's what the UK 0:06:45.330 --> 0:06:46.050 is looking to do. 0:06:46.529 --> 0:06:50.070 All this sounds really positive, but is there more that 0:06:50.070 --> 0:06:52.890 could be done to help pension savers? And if so, 0:06:53.220 --> 0:06:54.719 what could and should change? 0:06:55.110 --> 0:06:58.799 Let's stop where we've been from a pensions landscape. So 0:06:58.800 --> 0:07:01.890 over the last 10 years, there's been significant changes in 0:07:01.890 --> 0:07:07.469 retirement. So in the past, many pension providers would've paid 0:07:07.470 --> 0:07:10.740 a guaranteed income in retirement, and that would've been based 0:07:10.740 --> 0:07:13.230 on your salary and the number of years that you 0:07:13.230 --> 0:07:17.940 worked for that employer. These pensions generally gave people a 0:07:17.940 --> 0:07:22.620 relatively comfortable standard of living in retirement. But things have 0:07:22.620 --> 0:07:25.710 changed, as I said over the last decade. And nowadays, 0:07:25.980 --> 0:07:29.310 pension schemes off through employers don't really give the guaranteed 0:07:29.310 --> 0:07:33.090 amount when you retire. So it's really dependent on how 0:07:33.090 --> 0:07:35.160 much you put into your pot and how much those 0:07:35.160 --> 0:07:38.970 investments grow over time. So this means that we all 0:07:38.970 --> 0:07:41.850 need to take much more ownership of our pensions to 0:07:41.850 --> 0:07:45.330 make sure that we have a really good standard of 0:07:45.330 --> 0:07:49.290 living in retirement. So people do need to start thinking 0:07:49.290 --> 0:07:52.800 about saving more during their working life, and that is 0:07:52.800 --> 0:07:55.050 something that obviously will help them to have a much 0:07:55.050 --> 0:07:59.310 more comfortable retirement. If we just think about what that 0:07:59.310 --> 0:08:04.110 means for people in their 20s and 30s, if you're putting money 0:08:04.110 --> 0:08:07.200 into your pension or not putting money into your pension, 0:08:07.200 --> 0:08:09.570 probably because it's not high on the priority list, there's 0:08:09.570 --> 0:08:13.710 lots of other things that are taking the demands of 0:08:13.710 --> 0:08:17.280 what you're earning. And so yeah, lots of financial pressures 0:08:17.280 --> 0:08:20.580 mean that people are probably not investing into their pension 0:08:20.670 --> 0:08:24.780 at an earlier age. I saw some concerning stats recently 0:08:24.900 --> 0:08:28.200 that we've done that said 12% of 18 to 44 0:08:28.200 --> 0:08:31.380 year olds don't have any money saved for when they 0:08:31.380 --> 0:08:35.550 retire. While I think it was 36% don't know what 0:08:35.550 --> 0:08:38.970 their monthly contributions are. So all of that means that 0:08:38.970 --> 0:08:41.520 I guess we need to start thinking about investing in 0:08:41.520 --> 0:08:45.420 our pensions much earlier. So I mentioned auto enrollment earlier, 0:08:45.570 --> 0:08:49.170 that is a way of helping people who are 22 0:08:49.260 --> 0:08:53.520 or over to start to invest in their pension. And 0:08:53.520 --> 0:08:56.580 while that's good, it's not enough, we believe that it's 0:08:56.580 --> 0:09:00.270 probably not enough to give a comfortable standard of living 0:09:00.270 --> 0:09:02.670 because it is the minimum amount. The 8% that I 0:09:02.670 --> 0:09:05.610 talked about is the minimum amount. So I think that's 0:09:05.610 --> 0:09:09.270 something that we need to consider. And there's also the 0:09:09.270 --> 0:09:13.920 fact that employees who are not 22 or don't earn 10, 0:09:13.920 --> 0:09:17.010 000 pounds a year aren't automatically included in the company 0:09:17.010 --> 0:09:20.550 pension. So that could disadvantage them in the longer term. 0:09:21.000 --> 0:09:24.660 So I think auto enrollment should absolutely be broadened out 0:09:25.260 --> 0:09:28.170 to include every employee. I think that's the first thing. 0:09:28.710 --> 0:09:32.520 Second, I would say the automatic consolidation of small pots. 0:09:32.520 --> 0:09:35.699 We've just talked about some of the changes coming in 0:09:35.700 --> 0:09:38.939 for POTS under a thousand, but small pots above a 0:09:38.940 --> 0:09:42.000 thousand also benefit from better growth in the long term 0:09:42.210 --> 0:09:45.540 if we combine those with other pension savings. So there's 0:09:45.540 --> 0:09:47.790 more focus on this by the government and the industry 0:09:47.790 --> 0:09:50.939 actually, and more changes are in the pipeline in this 0:09:50.940 --> 0:09:54.390 area, which is really good to see. And then I 0:09:54.390 --> 0:09:58.230 think finally the Pensions Dashboard, which is something which is 0:09:58.230 --> 0:10:02.339 going to be introduced quite shortly. There's lots of work 0:10:02.340 --> 0:10:05.790 happening where companies are looking all to connect into a 0:10:05.790 --> 0:10:09.690 single source of information so everyone can go on, log 0:10:09.690 --> 0:10:12.720 onto the dashboard and get a clear view of where 0:10:12.720 --> 0:10:16.199 your pensions are, who you're invested with, and then take 0:10:16.200 --> 0:10:20.490 the necessary action to potentially consolidate those small pots themselves 0:10:20.790 --> 0:10:23.280 or just to keep a track of what's happening in 0:10:23.280 --> 0:10:25.770 their pensions so they're more aware of some of the decisions 0:10:25.770 --> 0:10:26.700 that they could be making. 0:10:27.179 --> 0:10:29.400 I do like the sound of the Pensions Dashboard because 0:10:29.400 --> 0:10:32.520 it reminds me of Star Trek and kind of navigating 0:10:32.520 --> 0:10:35.910 my pensions out in space, but that's coming down the 0:10:35.910 --> 0:10:37.500 track, but it's not with us just yet. 0:10:37.500 --> 0:10:40.590 It's not here yet. There's lots of work happening within 0:10:40.590 --> 0:10:42.960 the industry at the moment to get ready for this. 0:10:42.960 --> 0:10:45.870 So yeah, everyone is sort of working towards that. 0:10:45.990 --> 0:10:46.920 Watch this space. 0:10:46.980 --> 0:10:47.640 Exactly. 0:10:47.790 --> 0:10:50.910 In the meantime, whilst we wait maybe for some of 0:10:50.910 --> 0:10:53.970 those changes to happen at some point, who knows, what 0:10:53.970 --> 0:10:56.790 can we do to try to be in a stronger 0:10:56.790 --> 0:10:59.040 position when it comes to our retirement? Have you got 0:10:59.190 --> 0:11:00.360 three tips for us, Paula? 0:11:00.750 --> 0:11:03.000 I have, yeah. So I would say the first thing 0:11:03.000 --> 0:11:05.550 is save as much as you can as early as 0:11:05.550 --> 0:11:08.880 you can. Your future self will absolutely thank you for 0:11:08.880 --> 0:11:12.540 this. And really, I think there's a few things that 0:11:12.540 --> 0:11:15.150 you could do to make that happen. I think first 0:11:15.150 --> 0:11:18.750 of all, look at your employer contributions and the tax 0:11:18.750 --> 0:11:22.589 benefits available to you. They're in place and encouraged to 0:11:22.590 --> 0:11:25.260 help you to start saving as soon as you can. 0:11:25.590 --> 0:11:27.750 And also, if you get a pay rise, you can 0:11:27.750 --> 0:11:31.050 increase your percentage of your salary potentially that's going into 0:11:31.050 --> 0:11:35.910 your pot. Even just upping your contribution by 1% of 0:11:35.910 --> 0:11:40.530 your salary can vastly impact your future savings growth in 0:11:40.530 --> 0:11:44.640 your retirement. And you can also potentially look at investing. 0:11:44.640 --> 0:11:46.770 If you get a bonus, can you invest some of 0:11:46.770 --> 0:11:50.250 that as well into your pension? So start early and 0:11:50.250 --> 0:11:53.760 invest as much as you can. Secondly, pay more attention 0:11:53.760 --> 0:11:57.330 to your pension, find out how much you contributed, where 0:11:57.330 --> 0:12:00.569 your investment is, how much they've grown, look at the 0:12:00.570 --> 0:12:05.520 small parts, really get an understanding and start to think 0:12:05.520 --> 0:12:07.469 about the things that you could do today to really 0:12:07.470 --> 0:12:10.080 start to put yourself in a better position as you 0:12:10.080 --> 0:12:13.530 go into retirement. And then I think thirdly, if you're 0:12:13.530 --> 0:12:16.770 considering moving jobs, have a look at what the pension 0:12:16.980 --> 0:12:19.559 scheme looks like. Have a look at what the benefits 0:12:19.559 --> 0:12:23.970 are that that employer's offering. Some organizations make more generous 0:12:23.970 --> 0:12:28.110 contributions into your pension, so rather than the minimum that 0:12:28.110 --> 0:12:31.170 I talked about earlier, some can go much higher than 0:12:31.170 --> 0:12:34.470 that. So I think having a look at what those 0:12:34.470 --> 0:12:37.920 benefits are could really benefit you over the longer term. 0:12:38.220 --> 0:12:41.100 And also, if you do move jobs, you can usually 0:12:41.100 --> 0:12:45.690 move your old employer pension with you. Again, that keeps 0:12:45.780 --> 0:12:48.480 everything nice and simple for you, keeps everything in one 0:12:48.480 --> 0:12:52.140 place, but also gives you the opportunity to really grow 0:12:52.140 --> 0:12:53.490 that investment over time. 0:12:53.670 --> 0:12:55.530 That's really good to know. And yeah, I think you're 0:12:55.530 --> 0:12:57.690 right. We need to make it normal for us to 0:12:57.900 --> 0:13:01.559 look at an employer's pension arrangements just as much as 0:13:01.559 --> 0:13:04.380 we might consider, whether they offer free donuts on a 0:13:04.380 --> 0:13:07.950 Friday or a nice gym membership. The pension matters just 0:13:07.950 --> 0:13:09.510 as much, if not more in the long run. 0:13:09.510 --> 0:13:12.000 It does, in the long run, it absolutely does. Yeah. 0:13:13.770 --> 0:13:16.650 Thanks so much, Paula. It's clear small actions today can 0:13:16.650 --> 0:13:19.590 really make a difference further down the line. Next time, 0:13:19.650 --> 0:13:24.360 financial strategist and founder of Mind Over Money, Krystle McGilvery 0:13:24.480 --> 0:13:27.839 will be here to discuss how being neurodiverse might affect 0:13:27.960 --> 0:13:30.990 how you manage your finances. If this episode has made 0:13:30.990 --> 0:13:33.720 you think about your pension in a new way, great, 0:13:33.750 --> 0:13:36.450 why not share the podcast and help others get a 0:13:36.450 --> 0:13:39.480 little bit richer too? This podcast is brought to you 0:13:39.480 --> 0:13:41.580 by L& G. You can keep up with the show 0:13:41.580 --> 0:13:46.380 on YouTube, TikTok and Instagram at Legal & General. Until next 0:13:46.380 --> 0:13:47.700 time, see you soon.