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Iona Bain: Hello, I'm Iona Bain and welcome along to A Little
Iona Bain: Bit Richer, brought to you by Legal & General. Today we're
Iona Bain: touching on workplace pensions, and that's because they've been in
Iona Bain: the news recently. There's some changes coming down the track,
Iona Bain: including where some of your money is invested and what
Iona Bain: happens to those small pots you build up as you
Iona Bain: move between jobs. So we wanted to bring in an
Iona Bain: expert from L& G as they are the largest provider
Iona Bain: of defined contribution and workplace pension savings in the UK.
Iona Bain: Paula Llewellyn heads up the team there, so she is
Iona Bain: very well- placed to outline what's in the pipeline, why
Iona Bain: it's important for your future. Welcome Paula.
Paula Llewellyn: Thank you.
Iona Bain: So Paula, there are some changes happening to workplace pensions
Iona Bain: that people might have been hearing about recently. Can you
Iona Bain: tell us a little bit more about what they are?
Paula Llewellyn: Yeah, so look, pensions are really important for the standard
Paula Llewellyn: of living that people need to have in their retirement,
Paula Llewellyn: and that's why the government really takes a lead on
Paula Llewellyn: all things pension to make sure that people are getting
Paula Llewellyn: the best outcome that they want. So they're introducing some
Paula Llewellyn: new rules as part of a review that they've done.
Iona Bain: So what the specific changes that the government's bringing in?
Paula Llewellyn: So they're bringing in some new rules, which really means
Paula Llewellyn: that it's going to drive better outcomes for the longer
Paula Llewellyn: term for pension savers. But these things are not going
Paula Llewellyn: to happen overnight. They're going to take a number of
Paula Llewellyn: years to roll through. So nothing immediately is changing, but
Paula Llewellyn: will definitely see something over the next few years.
Iona Bain: Interesting. And in particular, changes are happening to small workplace
Iona Bain: pensions. Can you talk us through those? Because an issue that
Iona Bain: affects a lot of people, isn't it?
Paula Llewellyn: It is, yeah, absolutely. And research has shown that people
Paula Llewellyn: have on average 11 jobs over their lifetime. And so
Paula Llewellyn: as they move employer, they're building up these small pots.
Paula Llewellyn: And so what the new rules are going to do
Paula Llewellyn: is bring in the ability for people to combine these
Paula Llewellyn: small pots under a thousand pound. And that's got loads
Paula Llewellyn: of advantages. Number one, it makes it really easy for
Paula Llewellyn: people to manage, but also by combining these pots, you're
Paula Llewellyn: reducing the administration costs and potentially you'll see bigger growth
Paula Llewellyn: of your retirement savings over time.
Iona Bain: That all sounds really good. I think people will be wondering, "
Iona Bain: Do I have a small pension pot?" And maybe they
Iona Bain: do thanks to something called auto enrollment. Could you just
Iona Bain: quickly explain what that is and why it creates these
Iona Bain: small pension pots?
Paula Llewellyn: Auto enrollment basically means that if you are 22 or
Paula Llewellyn: over and earn over 10,000 pounds, you will automatically be
Paula Llewellyn: enrolled into your employer's pension scheme. So if you look
Paula Llewellyn: at how that's made up, there's normally 8% of your
Paula Llewellyn: salary which is invested into that pension scheme. 5% of
Paula Llewellyn: that comes from your salary, so 4% from your contribution
Paula Llewellyn: and 1% as tax relief from the government. And then
Paula Llewellyn: the 3% then comes from your employer.
Iona Bain: So that means that people are contributing to a workplace pension,
Iona Bain: but then when they move on from that job, the
Iona Bain: pension pot doesn't go with them. And that's why you
Iona Bain: can end up building up all these wee pension pots
Iona Bain: and all sorts of places that you might forget about.
Paula Llewellyn: That's right.
Iona Bain: That sounds like it could be a huge problem.
Paula Llewellyn: Yes, and that's exactly why the government is looking at
Paula Llewellyn: this now to really make it easier for pension savers
Paula Llewellyn: to manage their pensions. And I think paying attention to
Paula Llewellyn: your pension is really important, particularly because there's lots of
Paula Llewellyn: things that you need to be thinking about, what your contributions
Paula Llewellyn: are, how your investment is growing over time, etc. And
Paula Llewellyn: lots of companies make it easier now for people to
Paula Llewellyn: do that, whether that's online or through their app. We've
Paula Llewellyn: got a rate app at L& G that allows our
Paula Llewellyn: pension savers to be able to really get involved and
Paula Llewellyn: track what's happening in their pension.
Iona Bain: That's such a simple win, isn't it? To just check
Iona Bain: out your pension providers app, and maybe people don't realize
Iona Bain: that that is something that they can do.
Paula Llewellyn: Yeah, 100%.
Iona Bain: There's been a debate around whether our pensions could be
Iona Bain: used to try and kick- start economic growth. Could you
Iona Bain: talk us through how that might affect pension savers?
Paula Llewellyn: Yeah, absolutely. So people that manage pensions are focused on
Paula Llewellyn: getting really strong growth for their customers and to help
Paula Llewellyn: do this, they invest in companies in the UK as
Paula Llewellyn: well as globally. So in the changes that the government
Paula Llewellyn: have announced, they're keen to see more money from workplace
Paula Llewellyn: pensions being invested in the UK to help support the UK's
Paula Llewellyn: economy and growth. So in May, there was something called
Paula Llewellyn: the Mansion House Accord that really looked at some of
Paula Llewellyn: these changes in the types of areas the pension fund
Paula Llewellyn: managers like Legal & General can invest in. And so pension
Paula Llewellyn: companies have committed to invest at least 10% of the
Paula Llewellyn: money from some of their pension funds into what's called private
Paula Llewellyn: markets. So this covers companies that are not listed on the
Paula Llewellyn: stock exchange. So some of the largest and best- known
Paula Llewellyn: companies in the world are privately owned, and those are
Paula Llewellyn: household names like Aldi and Mars as an example. It
Paula Llewellyn: also covers investment into big building projects. So all of
Paula Llewellyn: that has the aim of boosting the UK economy through
Paula Llewellyn: creating more jobs, growing more businesses, and ultimately, helping people
Paula Llewellyn: grow their retirement savings.
Iona Bain: And there are all sorts of checks and balances like
Iona Bain: trustees for example, that really make sure that the pension
Iona Bain: funds are being invested well on behalf of savers.
Paula Llewellyn: 100%. Yeah. And that's again, their duty to make sure
Paula Llewellyn: that the outcomes that we're driving for pension savers are
Paula Llewellyn: the best that they could be.
Iona Bain: People might listen to that and think, well, that sounds
Iona Bain: nice, but I do also want to make sure that
Iona Bain: my pension is going to be there for me and is
Iona Bain: going to get me the growth that I need so
Iona Bain: that I can have the nice retirement that I deserve.
Iona Bain: So what balance is being struck between making sure that
Iona Bain: that money is being invested productively and making sure also
Iona Bain: that people get a good return?
Paula Llewellyn: This Mansion House Accord, how's the call, just helps to give a direction of travel,
Paula Llewellyn: I guess, in terms of balancing what we're doing with
Paula Llewellyn: pension savings as well as investing in the economy. So
Paula Llewellyn: yeah, it's something that pension companies like Legal & General are
Paula Llewellyn: really focused on, but ultimately driving that outcome for pension
Paula Llewellyn: savers is the most important thing. We've seen some of
Paula Llewellyn: these examples in other countries like Australia as an example,
Paula Llewellyn: where similar schemes really invest heavily into these private markets
Paula Llewellyn: and Australian businesses much more than in the UK. So
Paula Llewellyn: there is sort of a precedent already in the markets
Paula Llewellyn: of how to do this, and that's what the UK
Paula Llewellyn: is looking to do.
Iona Bain: All this sounds really positive, but is there more that
Iona Bain: could be done to help pension savers? And if so,
Iona Bain: what could and should change?
Paula Llewellyn: Let's stop where we've been from a pensions landscape. So
Paula Llewellyn: over the last 10 years, there's been significant changes in
Paula Llewellyn: retirement. So in the past, many pension providers would've paid
Paula Llewellyn: a guaranteed income in retirement, and that would've been based
Paula Llewellyn: on your salary and the number of years that you
Paula Llewellyn: worked for that employer. These pensions generally gave people a
Paula Llewellyn: relatively comfortable standard of living in retirement. But things have
Paula Llewellyn: changed, as I said over the last decade. And nowadays,
Paula Llewellyn: pension schemes off through employers don't really give the guaranteed
Paula Llewellyn: amount when you retire. So it's really dependent on how
Paula Llewellyn: much you put into your pot and how much those
Paula Llewellyn: investments grow over time. So this means that we all
Paula Llewellyn: need to take much more ownership of our pensions to
Paula Llewellyn: make sure that we have a really good standard of
Paula Llewellyn: living in retirement. So people do need to start thinking
Paula Llewellyn: about saving more during their working life, and that is
Paula Llewellyn: something that obviously will help them to have a much
Paula Llewellyn: more comfortable retirement. If we just think about what that
Paula Llewellyn: means for people in their 20s and 30s, if you're putting money
Paula Llewellyn: into your pension or not putting money into your pension,
Paula Llewellyn: probably because it's not high on the priority list, there's
Paula Llewellyn: lots of other things that are taking the demands of
Paula Llewellyn: what you're earning. And so yeah, lots of financial pressures
Paula Llewellyn: mean that people are probably not investing into their pension
Paula Llewellyn: at an earlier age. I saw some concerning stats recently
Paula Llewellyn: that we've done that said 12% of 18 to 44
Paula Llewellyn: year olds don't have any money saved for when they
Paula Llewellyn: retire. While I think it was 36% don't know what
Paula Llewellyn: their monthly contributions are. So all of that means that
Paula Llewellyn: I guess we need to start thinking about investing in
Paula Llewellyn: our pensions much earlier. So I mentioned auto enrollment earlier,
Paula Llewellyn: that is a way of helping people who are 22
Paula Llewellyn: or over to start to invest in their pension. And
Paula Llewellyn: while that's good, it's not enough, we believe that it's
Paula Llewellyn: probably not enough to give a comfortable standard of living
Paula Llewellyn: because it is the minimum amount. The 8% that I
Paula Llewellyn: talked about is the minimum amount. So I think that's
Paula Llewellyn: something that we need to consider. And there's also the
Paula Llewellyn: fact that employees who are not 22 or don't earn 10,
Paula Llewellyn: 000 pounds a year aren't automatically included in the company
Paula Llewellyn: pension. So that could disadvantage them in the longer term.
Paula Llewellyn: So I think auto enrollment should absolutely be broadened out
Paula Llewellyn: to include every employee. I think that's the first thing.
Paula Llewellyn: Second, I would say the automatic consolidation of small pots.
Paula Llewellyn: We've just talked about some of the changes coming in
Paula Llewellyn: for POTS under a thousand, but small pots above a
Paula Llewellyn: thousand also benefit from better growth in the long term
Paula Llewellyn: if we combine those with other pension savings. So there's
Paula Llewellyn: more focus on this by the government and the industry
Paula Llewellyn: actually, and more changes are in the pipeline in this
Paula Llewellyn: area, which is really good to see. And then I
Paula Llewellyn: think finally the Pensions Dashboard, which is something which is
Paula Llewellyn: going to be introduced quite shortly. There's lots of work
Paula Llewellyn: happening where companies are looking all to connect into a
Paula Llewellyn: single source of information so everyone can go on, log
Paula Llewellyn: onto the dashboard and get a clear view of where
Paula Llewellyn: your pensions are, who you're invested with, and then take
Paula Llewellyn: the necessary action to potentially consolidate those small pots themselves
Paula Llewellyn: or just to keep a track of what's happening in
Paula Llewellyn: their pensions so they're more aware of some of the decisions
Paula Llewellyn: that they could be making.
Iona Bain: I do like the sound of the Pensions Dashboard because
Iona Bain: it reminds me of Star Trek and kind of navigating
Iona Bain: my pensions out in space, but that's coming down the
Iona Bain: track, but it's not with us just yet.
Paula Llewellyn: It's not here yet. There's lots of work happening within
Paula Llewellyn: the industry at the moment to get ready for this.
Paula Llewellyn: So yeah, everyone is sort of working towards that.
Iona Bain: Watch this space.
Paula Llewellyn: Exactly.
Iona Bain: In the meantime, whilst we wait maybe for some of
Iona Bain: those changes to happen at some point, who knows, what
Iona Bain: can we do to try to be in a stronger
Iona Bain: position when it comes to our retirement? Have you got
Iona Bain: three tips for us, Paula?
Paula Llewellyn: I have, yeah. So I would say the first thing
Paula Llewellyn: is save as much as you can as early as
Paula Llewellyn: you can. Your future self will absolutely thank you for
Paula Llewellyn: this. And really, I think there's a few things that
Paula Llewellyn: you could do to make that happen. I think first
Paula Llewellyn: of all, look at your employer contributions and the tax
Paula Llewellyn: benefits available to you. They're in place and encouraged to
Paula Llewellyn: help you to start saving as soon as you can.
Paula Llewellyn: And also, if you get a pay rise, you can
Paula Llewellyn: increase your percentage of your salary potentially that's going into
Paula Llewellyn: your pot. Even just upping your contribution by 1% of
Paula Llewellyn: your salary can vastly impact your future savings growth in
Paula Llewellyn: your retirement. And you can also potentially look at investing.
Paula Llewellyn: If you get a bonus, can you invest some of
Paula Llewellyn: that as well into your pension? So start early and
Paula Llewellyn: invest as much as you can. Secondly, pay more attention
Paula Llewellyn: to your pension, find out how much you contributed, where
Paula Llewellyn: your investment is, how much they've grown, look at the
Paula Llewellyn: small parts, really get an understanding and start to think
Paula Llewellyn: about the things that you could do today to really
Paula Llewellyn: start to put yourself in a better position as you
Paula Llewellyn: go into retirement. And then I think thirdly, if you're
Paula Llewellyn: considering moving jobs, have a look at what the pension
Paula Llewellyn: scheme looks like. Have a look at what the benefits
Paula Llewellyn: are that that employer's offering. Some organizations make more generous
Paula Llewellyn: contributions into your pension, so rather than the minimum that
Paula Llewellyn: I talked about earlier, some can go much higher than
Paula Llewellyn: that. So I think having a look at what those
Paula Llewellyn: benefits are could really benefit you over the longer term.
Paula Llewellyn: And also, if you do move jobs, you can usually
Paula Llewellyn: move your old employer pension with you. Again, that keeps
Paula Llewellyn: everything nice and simple for you, keeps everything in one
Paula Llewellyn: place, but also gives you the opportunity to really grow
Paula Llewellyn: that investment over time.
Iona Bain: That's really good to know. And yeah, I think you're
Iona Bain: right. We need to make it normal for us to
Iona Bain: look at an employer's pension arrangements just as much as
Iona Bain: we might consider, whether they offer free donuts on a
Iona Bain: Friday or a nice gym membership. The pension matters just
Iona Bain: as much, if not more in the long run.
Paula Llewellyn: It does, in the long run, it absolutely does. Yeah.
Iona Bain: Thanks so much, Paula. It's clear small actions today can
Iona Bain: really make a difference further down the line. Next time,
Iona Bain: financial strategist and founder of Mind Over Money, Krystle McGilvery
Iona Bain: will be here to discuss how being neurodiverse might affect
Iona Bain: how you manage your finances. If this episode has made
Iona Bain: you think about your pension in a new way, great,
Iona Bain: why not share the podcast and help others get a
Iona Bain: little bit richer too? This podcast is brought to you
Iona Bain: by L& G. You can keep up with the show
Iona Bain: on YouTube, TikTok and Instagram at Legal & General. Until next
Iona Bain: time, see you soon.