Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Welcome to Meren Talks Your Money, the personal finance edition
Speaker 2: of Meron Talks Money. In these bonus podcasts, we talk
Speaker 2: about the best strategies for making the most of your money.
Speaker 2: I'm Merrin sums Thatt Web and with Me Senior a
Speaker 2: Border of Money Distilled author John STEBACKA John, hi'm so
Speaker 2: this week we're answering a question from Dress, who is eighteen.
Speaker 3: Edra's asked, I'm hoping to be going into the world
Speaker 3: of work results day willing, and my question is whether
Speaker 3: you think maxing out my company pension match is enough
Speaker 3: for when it comes to saving for my pension.
Speaker 2: It's not immediately as straightforward as it sounds for someone
Speaker 2: of Iddress's age. If you're eighteen, you're not automatically opted in.
Speaker 2: You're not automatically opted in until you're twenty too. Before that, however,
Speaker 2: if you earn over six two hundred and forty pounds,
Speaker 2: you do have the right to opt yourself, and so
Speaker 2: obviously it's a very good idea to do that as
Speaker 2: soon as you possibly can. Other thing to say is
Speaker 2: that it doesn't happen immediately, or it doesn't necessarily happen immediately.
Speaker 2: Your employer has the right to delay three months before
Speaker 2: they enroll you into an a pension that would a
Speaker 2: good employer will enroll you immediately, and I hope, I
Speaker 2: hope Address that your employer does do exactly that. Also
Speaker 2: if you've got your results. By the way, but this
Speaker 2: is an opportunity to talk not just about eighteen year olds,
Speaker 2: but about people in general going into the workplace and
Speaker 2: getting a pension. Is it enough to simply take that
Speaker 2: eight percent, sit back and forget about the whole thing
Speaker 2: until you retire?
Speaker 3: John?
Speaker 1: Is it fascinating? I'd like to say, is that I'm
Speaker 1: quite impressed that as an eighteen year old, Address is
Speaker 1: thinking about this eighteen year old great, yeah, I mean
Speaker 1: But the other thing is I mean, coincidentally, when they're late,
Speaker 1: we had new employees at money be Card whatever, and
Speaker 1: also other managers here at Bloomberg. I've kind of mentioned
Speaker 1: this to me that a lot of the time they're
Speaker 1: kind of younger. Newer staff will come to them and say, oh,
Speaker 1: do I really need to put money into this pension thing?
Speaker 1: And the things? The thing it's worth getting it clear
Speaker 1: in your head you should definitely join your auto enrollment pension,
Speaker 1: because if you don't, then you're literally leaving some of
Speaker 1: your pay for your employer to keep. It's that straightforward.
Speaker 2: That's right forward.
Speaker 1: And also if your employer does offer matching, so that
Speaker 1: you know if you put in five, they'll put in five.
Speaker 1: If you put in sex, they'll put in sex, you
Speaker 1: should max that out as much as you can, because again,
Speaker 1: that is for one of a better world. It's not
Speaker 1: free money. It's money you're not taking if you leave
Speaker 1: it on the table.
Speaker 2: So that I think they object to that is, Look,
Speaker 2: I'm young, I'm trying to pay rent. I've got a
Speaker 2: whole pile of expenses here, I'm paying twenty percent income tax,
Speaker 2: I'm paying eight percent, and I am paying nine percent
Speaker 2: of my student loan. Although it sounds like you're risk
Speaker 2: hub's not going to universities, it's not going to have
Speaker 2: that going straight into apprenticeship or something brilliant like that.
Speaker 2: But it's say you say you have got that, so
Speaker 2: you've got your twenty percent, you're eight percent, you're nine percent,
Speaker 2: and then another five percent on top of that. At
Speaker 2: some point your twenty something is going to go. I
Speaker 2: can't do this, it's too much, I get it.
Speaker 1: But honestly, from from that point of view, I think,
Speaker 1: and it's four percent year after salary, sort after tax
Speaker 1: income because it's gross stops, you know.
Speaker 3: So.
Speaker 1: You should try as hard as possible to be able
Speaker 1: to afford that. Because unless you've got an insanely big
Speaker 1: credit card build it's racking up a lot of interest.
Speaker 1: Then I don't see any senseible reason to not be
Speaker 1: putting this money aside. If you can't live on what
Speaker 1: you're learning at the moment, then I'd suggest trying to
Speaker 1: find another job. But it just just spending habits or something.
Speaker 1: I know that sounds brutal, but I'm talking about four
Speaker 1: percent here. We aren't talking about it's basically givin that.
Speaker 1: Presumably your sality isn't that loud if you're just starting O,
Speaker 1: it's just a good tar but you get any I mean,
Speaker 1: do you think that I'm being on the fiear?
Speaker 2: I do?
Speaker 3: You know?
Speaker 1: I don't.
Speaker 2: I mean, I think you're right. If you can do this,
Speaker 2: you must do this, and you must do everything that
Speaker 2: you can to make sure that you do do this.
Speaker 2: And the hope, of course, is that people are automatically
Speaker 2: enrolled they don't know this is happening. They never see
Speaker 2: the income, so they never miss it. My only fear
Speaker 2: here is just that it's already tough out there, tough,
Speaker 2: and young people are paying a huge amount of their
Speaker 2: income away already, and this is just a burden on top.
Speaker 2: But none of that. So you should do it. Yes,
Speaker 2: you should do it the absolute extent that you can.
Speaker 2: You should do this. So here's the second part of
Speaker 2: the question. Is it enough just to do this now?
Speaker 2: And awful lot of people are going to tell you.
Speaker 2: They answered, no, it's not enough. You've got to do more.
Speaker 2: You've got to put more and more and more. But
Speaker 2: I come back to my original point, which is, hang on,
Speaker 2: it's tough out there already, and life, your financial life anyway,
Speaker 2: is about balancing your living standard now and balancing your
Speaker 2: living sta and in the future, right, And so I
Speaker 2: think it's important not to encourage people to oversave in
Speaker 2: their twenties to the detriment of actually living, actually living,
Speaker 2: actually having fun, actually being able to afford the stuff
Speaker 2: that makes life nice. So I'm slightly against encouraging people
Speaker 2: to put more in. And I would also say that
Speaker 2: if let's say you start on a reasonably average salary,
Speaker 2: and your salary goes up by inflation plus a bid
Speaker 2: every year. And I've done the numbers on this, written
Speaker 2: columns on this. Do go and look on on Bloomberg
Speaker 2: and look for those columns. But you do end up
Speaker 2: with a couple of hundred thousand pounds if markets bathe
Speaker 2: like they normally do, from which you can take an income.
Speaker 2: Add that to the state pension, which I really hope
Speaker 2: will still exist and not be means tested when Idris retires,
Speaker 2: although I cannot guarantee that. But if you have that
Speaker 2: and you have the state pension, you should have a
Speaker 2: reasonable base income to retire. And I hope is as
Speaker 2: you get older and earn more, you'll be able to
Speaker 2: save into ices and to have different types of savings
Speaker 2: and hopefully be able to afford a house, etc. Which
Speaker 2: should mean that that pension income is enough.
Speaker 3: Not sure.
Speaker 2: As you get older and as you earn more and
Speaker 2: hopefully there's excess cash one one day, put it into
Speaker 2: your pension. Definitely, But I'm not sure that we should
Speaker 2: be encouraging people who are already on limited limited after
Speaker 2: tax incomes to oversave at this point in their career.
Speaker 2: Is that wrong.
Speaker 1: No, Actually, I agree with you, and I think that
Speaker 1: even if you have the excess income, if you like,
Speaker 1: then you should probably be looking save that once you've
Speaker 1: you know, maxed out the pension element. Save that in
Speaker 1: an eyser because the other important thing is that at
Speaker 1: the age of eighteen or your early twenties, you are
Speaker 1: so far away from the end goal and you've no
Speaker 1: idea what's going to happen over the next kind of
Speaker 1: fifty years. Well, not so forty.
Speaker 2: Years she maybe sixt year this, well maybe.
Speaker 1: Yeah, hopefully the life expectancy and health spans will go op.
Speaker 1: So it's not all but but you know, you need
Speaker 1: you really need the optionality the younger you are. I mean,
Speaker 1: for example, you know, you may just say that you
Speaker 1: want to go and set up a business, which is
Speaker 1: something that you can feasibly take the rescue doing when
Speaker 1: you're that age. So you want to have your spare
Speaker 1: capital accessible. You don't want it locked up until you're
Speaker 1: you know, fifty seven or sixty seven or whatever the
Speaker 1: age will be at that point to take out your
Speaker 1: pension what is it now and at the moment mill.
Speaker 2: It's going up to fifty seven. The other key thing
Speaker 2: to say, I suppose is John, I think you and
Speaker 2: I both agree that everyone, before they do another type
Speaker 2: of saving, should have six months worth of incoming cash.
Speaker 1: Oh yeah, you should have any that's your freedom money.
Speaker 2: That's your freedom money.
Speaker 1: Yeah, yes, so.
Speaker 2: Yes, take the pension. Then focus on building up six
Speaker 2: months worth of incoming cash, either in side of cash
Speaker 2: is for or outside of cash, either depending on where
Speaker 2: you can get the best rates. I remember, you can
Speaker 2: get one thousand pounds worth of interest.
Speaker 1: Is it still a thousand pounds a year?
Speaker 2: It's still I mean, things may change in October. That's
Speaker 2: about you're coming up. A lot of the things we're
Speaker 2: talking about could change in October. But yeah, save that
Speaker 2: money first. Then start putting stuff into an ISA, and
Speaker 2: make sure you keep that pinching countries running alongside.
Speaker 1: Yeah, I mean I do. I think that's important because yeah,
Speaker 1: i'd like to see as you see, you have to
Speaker 1: you have to live now and the other things. He's
Speaker 1: going to want to save up for our property at
Speaker 1: some point, and obviously you can't do that with our pension.
Speaker 1: The lifetime is IS is probably a good bit for
Speaker 1: that because he's young enough to get it, and you
Speaker 1: get kind of decent top up, and presumably the one
Speaker 1: thing that all governments seem to care about is making
Speaker 1: sure that first time buyers overstretch themselves to go in
Speaker 1: the housing market. So I'm sure I.
Speaker 2: Can't say anything with that little criticism built in, can you?
Speaker 2: So listen? This is obviously not financial advice, and everyone's
Speaker 2: circumstance is a different and so this is suggestions of
Speaker 2: what you might like to think about as opposed to
Speaker 2: advice specifically of what you should do. But we really
Speaker 2: appreciate that question. It's a very very good one and
Speaker 2: something that we she'll be thinking about. So thank you
Speaker 2: so much, Edis for calling in and giving us your question.
Speaker 2: Thanks for listening to this week's Maren Talks Money debrief.
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