WEBVTT - I'm 18. Is Saving Into My Workplace Pension Enough?

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>Welcome to Meren Talks Your Money, the personal finance edition

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<v Speaker 2>of Meron Talks Money. In these bonus podcasts, we talk

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<v Speaker 2>about the best strategies for making the most of your money.

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<v Speaker 2>I'm Merrin sums Thatt Web and with Me Senior a

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<v Speaker 2>Border of Money Distilled author John STEBACKA John, hi'm so

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<v Speaker 2>this week we're answering a question from Dress, who is eighteen.

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<v Speaker 3>Edra's asked, I'm hoping to be going into the world

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<v Speaker 3>of work results day willing, and my question is whether

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<v Speaker 3>you think maxing out my company pension match is enough

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<v Speaker 3>for when it comes to saving for my pension.

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<v Speaker 2>It's not immediately as straightforward as it sounds for someone

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<v Speaker 2>of Iddress's age. If you're eighteen, you're not automatically opted in.

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<v Speaker 2>You're not automatically opted in until you're twenty too. Before that, however,

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<v Speaker 2>if you earn over six two hundred and forty pounds,

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<v Speaker 2>you do have the right to opt yourself, and so

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<v Speaker 2>obviously it's a very good idea to do that as

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<v Speaker 2>soon as you possibly can. Other thing to say is

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<v Speaker 2>that it doesn't happen immediately, or it doesn't necessarily happen immediately.

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<v Speaker 2>Your employer has the right to delay three months before

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<v Speaker 2>they enroll you into an a pension that would a

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<v Speaker 2>good employer will enroll you immediately, and I hope, I

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<v Speaker 2>hope Address that your employer does do exactly that. Also

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<v Speaker 2>if you've got your results. By the way, but this

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<v Speaker 2>is an opportunity to talk not just about eighteen year olds,

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<v Speaker 2>but about people in general going into the workplace and

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<v Speaker 2>getting a pension. Is it enough to simply take that

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<v Speaker 2>eight percent, sit back and forget about the whole thing

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<v Speaker 2>until you retire?

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<v Speaker 3>John?

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<v Speaker 1>Is it fascinating? I'd like to say, is that I'm

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<v Speaker 1>quite impressed that as an eighteen year old, Address is

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<v Speaker 1>thinking about this eighteen year old great, yeah, I mean

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<v Speaker 1>But the other thing is I mean, coincidentally, when they're late,

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<v Speaker 1>we had new employees at money be Card whatever, and

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<v Speaker 1>also other managers here at Bloomberg. I've kind of mentioned

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<v Speaker 1>this to me that a lot of the time they're

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<v Speaker 1>kind of younger. Newer staff will come to them and say, oh,

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<v Speaker 1>do I really need to put money into this pension thing?

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<v Speaker 1>And the things? The thing it's worth getting it clear

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<v Speaker 1>in your head you should definitely join your auto enrollment pension,

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<v Speaker 1>because if you don't, then you're literally leaving some of

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<v Speaker 1>your pay for your employer to keep. It's that straightforward.

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<v Speaker 2>That's right forward.

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<v Speaker 1>And also if your employer does offer matching, so that

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<v Speaker 1>you know if you put in five, they'll put in five.

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<v Speaker 1>If you put in sex, they'll put in sex, you

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<v Speaker 1>should max that out as much as you can, because again,

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<v Speaker 1>that is for one of a better world. It's not

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<v Speaker 1>free money. It's money you're not taking if you leave

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<v Speaker 1>it on the table.

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<v Speaker 2>So that I think they object to that is, Look,

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<v Speaker 2>I'm young, I'm trying to pay rent. I've got a

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<v Speaker 2>whole pile of expenses here, I'm paying twenty percent income tax,

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<v Speaker 2>I'm paying eight percent, and I am paying nine percent

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<v Speaker 2>of my student loan. Although it sounds like you're risk

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<v Speaker 2>hub's not going to universities, it's not going to have

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<v Speaker 2>that going straight into apprenticeship or something brilliant like that.

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<v Speaker 2>But it's say you say you have got that, so

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<v Speaker 2>you've got your twenty percent, you're eight percent, you're nine percent,

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<v Speaker 2>and then another five percent on top of that. At

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<v Speaker 2>some point your twenty something is going to go. I

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<v Speaker 2>can't do this, it's too much, I get it.

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<v Speaker 1>But honestly, from from that point of view, I think,

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<v Speaker 1>and it's four percent year after salary, sort after tax

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<v Speaker 1>income because it's gross stops, you know.

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<v Speaker 3>So.

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<v Speaker 1>You should try as hard as possible to be able

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<v Speaker 1>to afford that. Because unless you've got an insanely big

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<v Speaker 1>credit card build it's racking up a lot of interest.

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<v Speaker 1>Then I don't see any senseible reason to not be

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<v Speaker 1>putting this money aside. If you can't live on what

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<v Speaker 1>you're learning at the moment, then I'd suggest trying to

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<v Speaker 1>find another job. But it just just spending habits or something.

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<v Speaker 1>I know that sounds brutal, but I'm talking about four

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<v Speaker 1>percent here. We aren't talking about it's basically givin that.

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<v Speaker 1>Presumably your sality isn't that loud if you're just starting O,

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<v Speaker 1>it's just a good tar but you get any I mean,

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<v Speaker 1>do you think that I'm being on the fiear?

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<v Speaker 2>I do?

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<v Speaker 3>You know?

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<v Speaker 1>I don't.

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<v Speaker 2>I mean, I think you're right. If you can do this,

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<v Speaker 2>you must do this, and you must do everything that

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<v Speaker 2>you can to make sure that you do do this.

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<v Speaker 2>And the hope, of course, is that people are automatically

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<v Speaker 2>enrolled they don't know this is happening. They never see

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<v Speaker 2>the income, so they never miss it. My only fear

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<v Speaker 2>here is just that it's already tough out there, tough,

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<v Speaker 2>and young people are paying a huge amount of their

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<v Speaker 2>income away already, and this is just a burden on top.

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<v Speaker 2>But none of that. So you should do it. Yes,

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<v Speaker 2>you should do it the absolute extent that you can.

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<v Speaker 2>You should do this. So here's the second part of

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<v Speaker 2>the question. Is it enough just to do this now?

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<v Speaker 2>And awful lot of people are going to tell you.

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<v Speaker 2>They answered, no, it's not enough. You've got to do more.

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<v Speaker 2>You've got to put more and more and more. But

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<v Speaker 2>I come back to my original point, which is, hang on,

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<v Speaker 2>it's tough out there already, and life, your financial life anyway,

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<v Speaker 2>is about balancing your living standard now and balancing your

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<v Speaker 2>living sta and in the future, right, And so I

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<v Speaker 2>think it's important not to encourage people to oversave in

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<v Speaker 2>their twenties to the detriment of actually living, actually living,

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<v Speaker 2>actually having fun, actually being able to afford the stuff

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<v Speaker 2>that makes life nice. So I'm slightly against encouraging people

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<v Speaker 2>to put more in. And I would also say that

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<v Speaker 2>if let's say you start on a reasonably average salary,

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<v Speaker 2>and your salary goes up by inflation plus a bid

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<v Speaker 2>every year. And I've done the numbers on this, written

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<v Speaker 2>columns on this. Do go and look on on Bloomberg

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<v Speaker 2>and look for those columns. But you do end up

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<v Speaker 2>with a couple of hundred thousand pounds if markets bathe

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<v Speaker 2>like they normally do, from which you can take an income.

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<v Speaker 2>Add that to the state pension, which I really hope

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<v Speaker 2>will still exist and not be means tested when Idris retires,

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<v Speaker 2>although I cannot guarantee that. But if you have that

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<v Speaker 2>and you have the state pension, you should have a

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<v Speaker 2>reasonable base income to retire. And I hope is as

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<v Speaker 2>you get older and earn more, you'll be able to

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<v Speaker 2>save into ices and to have different types of savings

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<v Speaker 2>and hopefully be able to afford a house, etc. Which

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<v Speaker 2>should mean that that pension income is enough.

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<v Speaker 3>Not sure.

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<v Speaker 2>As you get older and as you earn more and

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<v Speaker 2>hopefully there's excess cash one one day, put it into

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<v Speaker 2>your pension. Definitely, But I'm not sure that we should

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<v Speaker 2>be encouraging people who are already on limited limited after

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<v Speaker 2>tax incomes to oversave at this point in their career.

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<v Speaker 2>Is that wrong.

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<v Speaker 1>No, Actually, I agree with you, and I think that

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<v Speaker 1>even if you have the excess income, if you like,

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<v Speaker 1>then you should probably be looking save that once you've

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<v Speaker 1>you know, maxed out the pension element. Save that in

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<v Speaker 1>an eyser because the other important thing is that at

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<v Speaker 1>the age of eighteen or your early twenties, you are

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<v Speaker 1>so far away from the end goal and you've no

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<v Speaker 1>idea what's going to happen over the next kind of

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<v Speaker 1>fifty years. Well, not so forty.

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<v Speaker 2>Years she maybe sixt year this, well maybe.

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<v Speaker 1>Yeah, hopefully the life expectancy and health spans will go op.

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<v Speaker 1>So it's not all but but you know, you need

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<v Speaker 1>you really need the optionality the younger you are. I mean,

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<v Speaker 1>for example, you know, you may just say that you

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<v Speaker 1>want to go and set up a business, which is

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<v Speaker 1>something that you can feasibly take the rescue doing when

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<v Speaker 1>you're that age. So you want to have your spare

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<v Speaker 1>capital accessible. You don't want it locked up until you're

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<v Speaker 1>you know, fifty seven or sixty seven or whatever the

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<v Speaker 1>age will be at that point to take out your

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<v Speaker 1>pension what is it now and at the moment mill.

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<v Speaker 2>It's going up to fifty seven. The other key thing

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<v Speaker 2>to say, I suppose is John, I think you and

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<v Speaker 2>I both agree that everyone, before they do another type

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<v Speaker 2>of saving, should have six months worth of incoming cash.

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<v Speaker 1>Oh yeah, you should have any that's your freedom money.

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<v Speaker 2>That's your freedom money.

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<v Speaker 1>Yeah, yes, so.

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<v Speaker 2>Yes, take the pension. Then focus on building up six

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<v Speaker 2>months worth of incoming cash, either in side of cash

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<v Speaker 2>is for or outside of cash, either depending on where

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<v Speaker 2>you can get the best rates. I remember, you can

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<v Speaker 2>get one thousand pounds worth of interest.

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<v Speaker 1>Is it still a thousand pounds a year?

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<v Speaker 2>It's still I mean, things may change in October. That's

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<v Speaker 2>about you're coming up. A lot of the things we're

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<v Speaker 2>talking about could change in October. But yeah, save that

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<v Speaker 2>money first. Then start putting stuff into an ISA, and

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<v Speaker 2>make sure you keep that pinching countries running alongside.

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<v Speaker 1>Yeah, I mean I do. I think that's important because yeah,

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<v Speaker 1>i'd like to see as you see, you have to

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<v Speaker 1>you have to live now and the other things. He's

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<v Speaker 1>going to want to save up for our property at

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<v Speaker 1>some point, and obviously you can't do that with our pension.

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<v Speaker 1>The lifetime is IS is probably a good bit for

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<v Speaker 1>that because he's young enough to get it, and you

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<v Speaker 1>get kind of decent top up, and presumably the one

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<v Speaker 1>thing that all governments seem to care about is making

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<v Speaker 1>sure that first time buyers overstretch themselves to go in

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<v Speaker 1>the housing market. So I'm sure I.

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<v Speaker 2>Can't say anything with that little criticism built in, can you?

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<v Speaker 2>So listen? This is obviously not financial advice, and everyone's

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<v Speaker 2>circumstance is a different and so this is suggestions of

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<v Speaker 2>what you might like to think about as opposed to

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<v Speaker 2>advice specifically of what you should do. But we really

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<v Speaker 2>appreciate that question. It's a very very good one and

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<v Speaker 2>something that we she'll be thinking about. So thank you

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<v Speaker 2>so much, Edis for calling in and giving us your question.

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<v Speaker 2>Thanks for listening to this week's Maren Talks Money debrief.

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<v Speaker 2>If you like our show, rate review, and subscribe wherever

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<v Speaker 2>you listen to podcasts. Also be sure to follow me

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<v Speaker 2>and John on ex or Twitter at meren sw and

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<v Speaker 2>John Underscore Steppek. This episode was produced by Sumasadi, Production

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<v Speaker 2>support and sound designed by Moses and Questions and comments

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<v Speaker 2>on this show and all our shows are always welcome.

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<v Speaker 2>Our show email is Merenmoney at Bloomberg dot net.