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Get To Grips With Your Workplace Pension · A Little Bit Richer

0:01
Kia: Hi, it's Kia here. Paying into your workplace pension gets you extra money from
0:06
Kia: your employer and the government, and a strong start can
0:08
Kia: have surprisingly big benefits thanks to the power of compounding.
0:12
Kia: Saving relatively small amounts in your 20s and early 30s is the best
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Kia: route to being a little bit richer when you retire.
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Kia: Welcome to another episode of A Little Bit Richer, brought
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Kia: to you by my friends at Legal & General. We've unpacked
0:25
Kia: why workplace pensions matter so much in episode three of
0:27
Kia: the podcast. Today, Legal & General's workplace pensions expert, and a
0:31
Kia: friend of the show, Kim Brown, is back to help
0:34
Kia: us get the most out of our pensions. Welcome back, Kim.
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Kim Brown: Thanks, Kia.
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Kia: So, Kim, firstly, let's recap. What do we mean by
0:42
Kia: a workplace pension, and what are the benefits of this
0:44
Kia: type of pension?
0:46
Kim Brown: Yeah, so if we start by looking at the state pension,
0:48
Kim Brown: to put it into context. So, the state pension is
0:50
Kim Brown: paid for weekly by the government. It starts at age
0:54
Kim Brown: 66 now, which will be going up, might be later
0:57
Kim Brown: for many that are listening. Your amount that you get
1:00
Kim Brown: from the government per week will be dependent on a
1:02
Kim Brown: number of factors, including the level of national insurance you
1:05
Kim Brown: pay throughout your working career. But if we take the
1:08
Kim Brown: figures from April, it's 11,500 pounds maximum a year of
1:13
Kim Brown: state pension. So, I think for many that might be
1:17
Kim Brown: perceived as quite a modest amount to live on, particularly
1:20
Kim Brown: people that are going to still be paying off a
1:21
Kim Brown: mortgage or paying into rent. And if that is true
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Kim Brown: for your circumstances, you think you'll need more than 11,500,
1:28
Kim Brown: you want to think about topping that up. And that
1:30
Kim Brown: can be through a private pension or through a workplace
1:33
Kim Brown: pension. Your question then on the benefits of workplace pensions,
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Kim Brown: there's two I particularly highlight on top of the already
1:42
Kim Brown: amazing thing that you're doing, which is thinking about your
1:43
Kim Brown: future and putting money aside for it. One is that
1:46
Kim Brown: your employer has to contribute. At least 3% of your
1:49
Kim Brown: salary from your employer goes into your pension. That might
1:53
Kim Brown: be higher, your employer might offer more, but also some
1:56
Kim Brown: employers do contribution matching, so if you pay higher than
1:59
Kim Brown: your statutory minimum, they'll pay higher than they have to.
2:02
Kim Brown: So, that's definitely worth exploring. And I think when we
2:05
Kim Brown: last met, you really well described it as a deferred pay.
2:08
Kia: Yes.
2:09
Kim Brown: They're paying your salary today, the pension is then putting
2:12
Kim Brown: money away for when you've stopped working. And I really
2:14
Kim Brown: love that and that's something that people can take advantage
2:16
Kim Brown: of. The second benefit of a workplace pension then, is that
2:19
Kim Brown: you get tax relief. So, you get money from the
2:21
Kim Brown: government. So, if you want to put 100 pound a
2:24
Kim Brown: month into your pension, you only have 80 pounds taken
2:27
Kim Brown: from your salary. The 20 pound comes from the government
2:30
Kim Brown: in the form of tax relief. The caveat, the difference
2:34
Kim Brown: of a workplace pension, besides saving, for example, into an
2:38
Kim Brown: ISA, is you can't then touch that money till later.
2:41
Kim Brown: It's for your retirement. So currently, at age 55, you
2:44
Kim Brown: could access that. Again, that will be going up, but
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Kim Brown: might be later for those listening.
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Kia: I think it's really great and I love covering workplace
2:51
Kia: pensions, because pensions in general, as a topic, when you're
2:55
Kia: young, 20, 30, even sometimes early 40s, you think that's so
2:59
Kia: long away. But as we mentioned, it's so important to think
3:02
Kia: about that. So, what happens to the money that is
3:05
Kia: saved in a pension?
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Kim Brown: So, at the highest level, your money's invested. It's invested with
3:11
Kim Brown: the aim of growing over the time. So, your employer
3:14
Kim Brown: will pick a company, like Legal & General, someone that can
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Kim Brown: invest and manage your money. Your money will be held
3:20
Kim Brown: for you in a pot, but it'll be pulled together
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Kim Brown: with others and invested. So, your money will be used
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Kim Brown: to buy stuff, to buy assets, with that objective of
3:29
Kim Brown: growing over time. And it grows either because the assets
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Kim Brown: grow in value, or because they're paying money back into
3:35
Kim Brown: the scheme. And what that fund manager would be doing
3:38
Kim Brown: on your behalf, is selecting the assets, so that could
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Kim Brown: be shares, so bits of companies, they could be looking at
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Kim Brown: bonds, cash, property. So, your money's not sat there in
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Kim Brown: cash, it's being invested to grow, which is why it's
3:51
Kim Brown: a job for the expert. And because of pulling together
3:54
Kim Brown: with others, you're able to better spread that risk. You'll
3:57
Kim Brown: be invested in different countries, in different assets that are, again,
4:01
Kim Brown: looking to generate that growth over time.
4:03
Kia: Amazing. I think in general, investing can seem very daunting,
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Kia: especially pension investing, but I think when you put it
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Kia: there, it makes sense especially because, as I mentioned, we're
4:13
Kia: not going to touch that for a long time. So,
4:15
Kia: you want to put it away and help it, hopefully,
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Kia: for it to grow so you can get back more
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Kia: than you initially put in. And that's always the aim.
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Kia: So, Kim, pension investments feel like a very daunting topic
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Kia: for some, so can you explain a little bit more
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Kia: for us?
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Kim Brown: I can really appreciate that. I think they can feel
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Kim Brown: daunting because investments can go up and down, and the
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Kim Brown: value of your pension pot can, but I think if
4:35
Kim Brown: you think about it like if you bought a flat
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Kim Brown: in London in the '80s, and if you're looking at
4:39
Kim Brown: the price of that flat now, it probably has gone
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Kim Brown: up over time. That's the same goal as your pension.
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Kim Brown: And if you look every day or every week, you
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Kim Brown: will find that it moves up and down, but the
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Kim Brown: goal is to generate returns over the longer term. I
4:52
Kim Brown: think the flip side of thinking about it as being
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Kim Brown: daunting, is to think about how much power there is
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Kim Brown: in pensions as well, and I mean that in two
5:00
Kim Brown: ways. So, we talked about owning shares, so owning bits
5:03
Kim Brown: of companies. As a result, Legal & General, fund managers, as
5:07
Kim Brown: well as members can have the right to vote and
5:10
Kim Brown: express their opinion on certain decisions that those companies make.
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Kim Brown: That might be in relation to whether they're paying the
5:16
Kim Brown: living wage, executive pay or their approach and treatment on
5:20
Kim Brown: climate. And it's a really interesting way of indicating to those
5:24
Kim Brown: companies what their investors care about and starting to shift
5:27
Kim Brown: the dial on big strategic issues. So, for example, Legal &
5:30
Kim Brown: General recently voted in favor of getting increased transparency around
5:34
Kim Brown: how Apple are using AI and their ethical guidelines around
5:38
Kim Brown: it. And as I say, it's just a really powerful way
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Kim Brown: of indicating the ways that members feel, as well as
5:45
Kim Brown: fund managers voting. The second really powerful way, I think,
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Kim Brown: is you can choose where your money is invested if you wish
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Kim Brown: to. So, you can take greater risk, but you can
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Kim Brown: also pick funds that are more aligned to your ethical
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Kim Brown: views, to pick sustainability funds, pick those that have religious
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Kim Brown: beliefs that align with yours. So, I appreciate that people
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Kim Brown: can be daunted by some aspects. I hope there's also
6:08
Kim Brown: some really interesting elements in there, and the more you get
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Kim Brown: to know, I think the less daunting and the more
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Kim Brown: interesting they become.
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Kia: I absolutely agree. I think this podcast is a testament to it, that
6:16
Kia: knowledge is power and you feel more confident and more
6:19
Kia: empowered the more you know, so it's really good to
6:21
Kia: hear that. This is the age- old question, Kim. It's
6:25
Kia: all about how much should you be putting in your
6:27
Kia: pension. So, I'm going to ask you. What percentage of
6:31
Kia: someone's salary is ideal that someone should be putting away
6:34
Kia: every month? And if someone is in their 20s and 30s, like I
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Kia: mentioned, it seems so far away, is it something that
6:40
Kia: they should even be worrying about right now?
6:43
Kim Brown: It's a great question and I wish I had a
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Kim Brown: singular answer for you, a right or wrong answer to
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Kim Brown: this question, but the amount that you should be contributing
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Kim Brown: is based on you. It's based on what's affordable, but
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Kim Brown: it's also based on when you want to retire and
6:56
Kim Brown: what that retirement looks like. So, my best advice would
6:59
Kim Brown: be to use some of the tools available to help
7:01
Kim Brown: you plan. There's some brilliant free resource. If you go
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Kim Brown: onto Money Helper, they've got a retirement planner, you can
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Kim Brown: put in details about what you earn, when you want
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Kim Brown: to retire, as I say. And they'll show you your
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Kim Brown: projected income at retirement, but they've also got good sliders
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Kim Brown: that you can adjust. What happens if I pay more?
7:19
Kim Brown: What happens if I retire later? Companies like ours, like
7:22
Kim Brown: Legal & General, will have similar things, retirement planner tools, so
7:26
Kim Brown: get on one of those free tools through your pension
7:28
Kim Brown: provider, or generally available, and just look and think about
7:32
Kim Brown: it. And your point on younger savers. It's so true.
7:35
Kim Brown: Save as much as you can as early as you
7:37
Kim Brown: can, because that money has a really long amount of
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Kim Brown: time to work for you.
7:41
Kia: Amazing. I think that's really important, like you said, and
7:44
Kia: I'm not too far away. So, 30 years is approaching
7:48
Kia: for me, it's coming. Is there a certain amount that
7:52
Kia: people like myself, around that age, should aim to have in their pension pot?
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Kim Brown: I thought you're saying you're not that far away from retirement.
7:58
Kia: No. Oh my gosh, no.
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Kim Brown: No, not quite.
8:02
Kia: Not quite.
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Kim Brown: Not too far away from 30, okay.
8:04
Kia: From 30.
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Kim Brown: I think it's worth looking at and thinking now, but
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Kim Brown: I would just regularly review it. So, I think what
8:10
Kim Brown: can be really important is when you get a pay
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Kim Brown: increase, before you get used to that money in your
8:14
Kim Brown: pocket, log back onto one of those planners, think about
8:17
Kim Brown: the difference it could make over the longer term if
8:19
Kim Brown: you invest. Same is true if you get a bonus.
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Kim Brown: It's a really tax- efficient way of using your bonus
8:25
Kim Brown: money. And again, before it goes in your pocket, think
8:28
Kim Brown: about retirement you and what that could mean then.
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Kia: That's good, I think I've said this before. Pina Colada
8:33
Kia: on the beach, I'm going to have that in mind
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Kia: when I'm thinking about my pension. That's really good. So then,
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Kia: Kim, what information do you suggest that people check with
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Kia: their pension savings? And what should they be keeping an
8:44
Kia: eye on, and more importantly, how frequently?
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Kim Brown: So, I think people should look at their pension every day.
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Kia: Imagine, every single day, pull it up.
8:52
Kim Brown: No, you're absolutely right. Pensions are a long- term investment,
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Kim Brown: it's not a daily thing, it's not like your bank
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Kim Brown: account. I think what's important is getting it right at
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Kim Brown: the start. And that can be when you start a new job, that
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Kim Brown: can be today, for instance. If you're enjoying this podcast,
9:04
Kim Brown: you're interested in pensions, start today and think about, do
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Kim Brown: you know where your money is invested? How much are
9:10
Kim Brown: you putting in? Have you nominated your death beneficiary?
9:14
Kia: A big one.
9:14
Kim Brown: Yeah, it's a big one. Make sure that we know
9:17
Kim Brown: who you want to get your benefits if you do
9:19
Kim Brown: pass. All those things are really, really key. And including
9:22
Kim Brown: there, are we saving enough? So, I think that's it. Get it
9:25
Kim Brown: right. And then, how frequently? I think annually feels about
9:29
Kim Brown: right. Once a year, pay your pension some attention. Go
9:33
Kim Brown: back in, check some of those assumptions, and make sure
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Kim Brown: you're on track for the retirement you've been picturing. And
9:40
Kim Brown: then lastly, I just think it's really important to do
9:42
Kim Brown: it when there's a life event, particularly if you're taking
9:45
Kim Brown: a career break. I think most people are familiar with
9:47
Kim Brown: the gender pay gap. There's also a gender pensions gap,
9:51
Kim Brown: where Legal & General research has shown that women are retiring
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Kim Brown: with half the pension of men. So, if you are
9:57
Kim Brown: going on maternity leave, same could be true for paternity,
10:01
Kim Brown: really do think about the impact it can have, not
10:03
Kim Brown: just on your pocket today, but on your future. The
10:06
Kim Brown: other area, actually, it's in divorce. Again, Legal & General have
10:09
Kim Brown: done some research in this area, and a third of
10:12
Kim Brown: women on divorce are waiving their right to their partner's
10:15
Kim Brown: pension. And it can be a really sizable asset. Sometimes
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Kim Brown: it's the second- biggest behind, say, a house. So, it's
10:21
Kim Brown: really important to be aware and think about it and
10:24
Kim Brown: take it into consideration.
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Kia: You've touched on a lot of good points there. I
10:27
Kia: think one I want to circle back on is when
10:29
Kia: you mentioned nominating beneficiaries.
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Kim Brown: Yeah.
10:32
Kia: That's a big one. I had some people close to
10:34
Kia: me lost family members, but because their family member didn't
10:38
Kia: nominate beneficiaries, it was a round the house thing, trying
10:41
Kia: to figure out where's the pension, how can we get
10:43
Kia: it, can we access it? And when you are going
10:46
Kia: through that process, something like that where you've lost someone
10:48
Kia: and you're grieving, having to do all that work in
10:50
Kia: admin isn't really something that is on top of your mind
10:53
Kia: and you shouldn't have to be doing that. So, it is very
10:54
Kia: important, when you review, to make sure that you're checking everything
10:57
Kia: and make it easier if that time does come. Obviously,
11:00
Kia: we hope that you can draw your own pension, but if
11:02
Kia: you do need to pass it on, make sure that
11:03
Kia: is covered.
11:05
Kim Brown: I couldn't agree more. It's not part of the estate,
11:08
Kim Brown: so it will be covered separately. You can do it
11:10
Kim Brown: online now at Legal & General, and you can view it
11:13
Kim Brown: online. And I think that's really helpful in just ensuring
11:16
Kim Brown: that you've taken those right steps.
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Kia: I absolutely agree. So, you touched on it a little
11:19
Kia: bit there, Kim, but what happens to your workplace pension
11:23
Kia: if you move jobs? I'm sure there's many people out
11:25
Kia: there, myself included, you've gone from one job to another,
11:28
Kia: you contributed here and there, so what happens to those pensions? Do
11:30
Kia: they just disappear into the ether and we never see
11:32
Kia: them again? Or is the money sitting there? What happens
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Kia: to them?
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Kim Brown: Your pension is your money. So, if you move jobs,
11:38
Kim Brown: you can move your pension with it. And I think
11:41
Kim Brown: pension consolidation is really worth considering. You want to look
11:45
Kim Brown: at the costs and charges you're paying in your different
11:47
Kim Brown: pots and make sure that it makes financial sense to
11:49
Kim Brown: consolidate. But it can help. And I think wider than
11:54
Kim Brown: that, is thinking about the value of having all your
11:57
Kim Brown: money in one spot. If a key thing to do
12:00
Kim Brown: annually is just check you're on track, if you're checking
12:02
Kim Brown: one pot and that's all in one place for you,
12:05
Kim Brown: it's a lot easier for you to picture your future
12:07
Kim Brown: and see what it could look like than having multiple
12:08
Kim Brown: pots. So, I think for that reason in particular, it's
12:11
Kim Brown: helpful to think about scheme consolidation.
12:13
Kia: Amazing. Kim, before we end, because this has been great,
12:16
Kia: what are your top three tips on workplace pensions?
12:20
Kim Brown: So, my top three, particularly on your focus on those
12:24
Kim Brown: in their 20s and early 30s, I think save as
12:27
Kim Brown: much as you can for as early as you can.
12:29
Kim Brown: Really make that money work for you. I think the
12:32
Kim Brown: second is that, pay your pension some attention. Understand where
12:36
Kim Brown: your money is, annually think about it, think about consolidation.
12:40
Kim Brown: Check it's right for you, but I think it helps
12:43
Kim Brown: in making sure you're on track for the retirement that you
12:46
Kim Brown: want when you want it. And the third, I think,
12:48
Kim Brown: is talk about pensions, talk about finance. I feel like
12:52
Kim Brown: we really do have a gap in this country. I
12:55
Kim Brown: see it amongst my friends, let alone people younger than
12:58
Kim Brown: me. So, if you've enjoyed this today, if you've got
13:01
Kim Brown: something from it, share it with a friend, share it
13:03
Kim Brown: with a colleague, talk to them about money.
13:05
Kia: Absolutely agree. Financial education is so important, but I think
13:09
Kia: the good thing we want to end on is, pay
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Kia: your pension some attention. I like that one. Kim, thank
13:14
Kia: you so much, as always. You've come back and you've
13:16
Kia: graced the podcast with amazing gems. So, I hope everyone
13:19
Kia: listening is going to be pulling up their workplace pension
13:21
Kia: and reviewing it, because that's what we need to be
13:23
Kia: doing. Next time, we're delving into debt and have helpful
13:27
Kia: tips on how to manage it. I'd love it if
13:30
Kia: you shared the podcast, tell a mate, leave a review,
13:33
Kia: and help other people start getting a little bit richer.
13:36
Kia: And if there's anything you'd like me to discuss on
13:38
Kia: future episodes, get in touch via Legal & General's Instagram and TikTok channels.
13:42
Kia: You can also see some fun behind the scenes videos,
13:45
Kia: and exclusive tips from a range of our experts. A
13:48
Kia: Little Bit Richer is brought to you by Legal & General.
13:51
Kia: Thank you for listening and see you soon.