E1: Making a positive impact with your pension - with Clare Reilly, and Damien Fahy

The Pension Confident Podcast

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29 Nov 2021 /  

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The following is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to Episode 1, or scroll on to read the conversation.

Music kicks in

Hello, I’m Peter Komolafe; presenter of PensionBee’s Pension Confident Podcast. Every month I’ll be talking to members of the PensionBee team and some of the brightest minds in personal finance to discuss the biggest topics impacting your pension. Just as a precursor, anything discussed on this podcast should not be taken as financial advice and as always with investments, your capital is at risk.

But remember, a happy retirement is a journey, not a destination and the Pension Confident Podcast is here to help you get there. I’m really excited, so let’s get started!

Expert advice on sustainable investing

PETER: Firstly, I’d like to thank you so much for downloading this podcast. We get it, pensions are complicated but both myself and the team at PensionBee are on a mission to make things simple. Whether you’re just starting out on your retirement journey, you’re near retirement, or somewhere in between, this podcast is here to help you get the best out of your pension - and we want you to help us shape it.

That’s why every month we’re going to be kicking off the episode with a Q&A with a PensionBee expert, digging into the biggest questions from PensionBee customers and some of the latest pension news out there. In this episode I’ll be putting your questions to Clare Reilly, Chief Engagement Officer at PensionBee, to address some of the questions customers have been asking about sustainable investing - can we really help tackle climate change with our pension’s investment choices?

Then, later in the show, I’ll be joined by Damien Fahy, founder of popular personal finance website Money to the Masses, to discuss how he believes you can get the equivalent of £30,000 a year in annual pension income by investing as little as £55 a month. That’s right, just £55 a month. We’re going to go through all of the numbers for you.

But first, let’s bring in Clare Reilly, Chief Engagement Officer at PensionBee, to talk about the topic of sustainable investing. Clare, welcome and could you please introduce yourself to everyone?

CLARE: Hi, everyone. So, I’m Clare Reilly. As Pete said, I’m Chief Engagement Officer here at PensionBee. What I do is, I lead on all of our customer engagement work. So, what that means is making sure constantly that our plans meet the changing needs of our customer base. But it also means doing a lot of work directly with customers through focus groups, surveys, case studies to get their voices out into national media. And we do that because PensionBee exists to make pensions simple for everyone in the UK, and so that we can all look forward to happy retirement. And so that means we have to offer our customers an easy way to combine all their pensions together. They can manage that pension online, view their balance, make contributions and withdrawals and actually use some tools to understand how much they should be saving to have the retirement they want.

PETER: I want to start with some basics to get those covered, because we’re not all experts in pensions. In fact, a lot of the time many of us get very, very confused about pensions. So, you know, when we talk about contributions into a pension, number one, how does the pension work? Where do the contributions go? And what’s the point of saving into a pension as opposed to, say, stuffing it in a safe or underneath the mattress or in a bank account somewhere?

CLARE: Right? So, first thing to say is that pensions are actually very simple. They’ve just been saddled with loads of complicated jargon and regulation over the years, which makes them seem a bit inaccessible. In the simplest sense, a pension is your income when you can no longer work, right? You put aside money during your working life, you invest it in the stock market or another type of investment to help it grow and then when you come to retire, and you stop working, and you stop having income from work, you have this pot of money, a pension that will help you see you through to the end of your life. Right? Quite simple, right? But it seems inaccessible, but it really isn’t. And the government is really supportive, obviously, of this behaviour and so they offer a great tax advantage to doing it. So that’s the pension. It’s a tax efficient wrapper and what it means is that for every £100 you put in your pension, the government rewards this behaviour, and they add another £25 pounds on top. So that’s if you’re a basic rate taxpayer, and of course, a little bit more if you’re a higher additional rate taxpayer. And if you’re a PensionBee customer, what you’ll see is every time you make a contribution, you’re gonna see a HMRC tax top up will be added to your account on top and that’s basically free money from the government. And that doesn’t happen very often so that’s a good thing. I mean, look, there’s two types of pensions in the UK, right? There’s defined benefit pensions and there’s defined contribution pensions.

PETER: Can you just give us a brief explanation of how they differ from one another?

CLARE: Defined benefit pensions, they’re the ones that you’ll usually read about in the news, and they paid you a set income for the rest of your life, right? That’s the defined benefit bit. They’re very valuable and they’re pretty rare now. By far the most common type of pension in the UK and the one that we offer at Pension Bee and mostly what you’ll get in the workplace now is a defined contribution pension. So, this is where you and your employer make defined or set contributions over time to grow your pension fund so that in retirement, you have this pot to support you. So, you’re responsible for growing that, you’re responsible for taking care of it and you’re responsible for making it last through all the years of your retirement, which is very different to that defined benefit type. I told you your employer is going to take care of everything and pay you that set amount in retirement. So, you need to understand how much you should be saving and to be honest, most people are currently not saving enough to give them the retirement that they deserve. That’s mainly because they’ve got pensions scattered all over the place from different jobs, they don’t know what their balance is, and they often just don’t know how much they should be saving. And so that’s where PensionBee comes in.

And I just want to answer your one about under the bed, right? So, if you decided to not put any money in a pension, and you wanted to put it under your bed instead, the first practical problem, you’re going to have this that Bank of England keeps withdrawing and issuing new banknotes, right? So, you’d have to be pretty careful that your whole stash wasn’t worthless. More importantly, your savings will actually - they’re going to decrease rather than increase over time if you keep money in cash long enough. And that’s because of inflation. So, if inflation is, say, 2% a year, and that’s the price of household goods, like food, and clothing and fuel, it means there’ll be rising at a rate of 2% a year. So, if your savings are not earning at least 2% a year, the effect of inflation would mean that your money would buy less in a year’s time again and again. And so, the simple rule is that if you don’t want your money to shrink over time, you need to place it in an account that’s paying more in returns than inflation and that would be a pension. So, the average pension, I think, if you look at history, is returned around 5% to 7% each year, so it’s a lot better to have your money in a pension than under the bed.

PETER: Most of the new pensions are defined contributions. Where does the money actually typically go? Where does it end up going?

CLARE: Yeah, so the strategy of those pensions is to invest in a really wide range of assets, and geographies. And what that will do is it will give you a more consistent performance over time. So, what it means is ultimately, most pensions will be invested in thousands of different companies all around the world. So, there’ll be companies of different sizes across different sectors and in different countries. So, if one region or country does badly in any given year, then that will balance out. As I said, that’s diversification. So, pensions can be something as well called multi asset. So that means they invest in a mix of stocks or companies, then also maybe bonds, listed property, gilts, commodities, or similar.

The default plan we have at PensionBee is called Tailored and the way that the Tailored plan works is that it de-risks as you approach retirement and so it gives you the right mix of different types of investments for your age. So basically, if you’re 30 years away from retirement, you should be investing for growth, because you’ve got this really long-time horizon, to be able to take on more risk, because these are your kind of go for growth years. But as you start getting older, and you start getting close to retirement, you should be investing for stability, and you should be investing in the safer asset classes. So those are like bonds and gilts and they’re going to be less susceptible to market fluctuations in those years as you approach retirement.

PETER: So essentially, what you’re describing there is that it’s kind of protecting your journey towards retirement?

CLARE: Yeah, no, that’s exactly it. And so, lots of people don’t want to spend their weekends like following...

PETER: People have better things to do.

CLARE: Every region and every industry, they’d much rather just get some comfort from the fact that all that’s kind of being magically done in the background by a team of experts.

PETER: So, let’s move on to sustainable investing. So how does sustainable investing differ to the investment approach that you’ve just described there?

CLARE: Well, I mean, sustainable investing is about investing in progressive companies that are trying to take into account some or all of the problems this world is facing, and that’s companies that are going to help with the transition to a low carbon economy, or it’s companies that are really embedded in the communities that they’re operating in, or values driven companies with kind of a clear social purpose. So for some, that’s the right thing to do, but for more and more people, it’s because there’s this huge body of evidence that says long term, those companies are going to be more financially successful What was that David Attenborough, quote recently about how illogical it is for your pension to kind of seek short term profit from companies that are simultaneously destroying the world you plan to retire into?

PETER: So, for customers who choose to invest on a sustainable basis, don’t necessarily have to be worried about potentially taking a hit?

CLARE: Yeah, I mean, sustainable investing is redirecting money into the type of companies that are mindful and committed to making the world better around them and not destroying it with their business activity.

PETER: I know that recently there has been a lot of stuff in the news around sustainable investing and people’s views on that. In particular Extinction Rebellion, and what they’re trying to do is they’re trying to enforce, I guess, the investment landscape into coming out of things like fossil fuels. What’s the PensionBee position on that? Do you agree with the sentiment and agree with some of the protests that they have?

CLARE: I mean, why do people protest? People protest, because they don’t feel heard. So, I think when it comes to the planet, and the fact that the planet is dying, because of the human exploitation and people, obviously, understandably, very angry. They’re only getting angrier, aren’t they, when they see executives at these large corporations that are exploiting the planet’s resources and getting paid millions in bonuses for doing so. So, I think the other thing to say as well, it’s so hard, isn’t it, every day to be making the right decisions, to be acting in a sustainable way. That often means buying more expensive products, not eating meat, or dairy as much as you might like to, but all grappling with these decisions, and it can be really exhausting and expensive, I think, to always constantly be trying to do the right thing, when we know actually, in the back of our minds, individuals alone are not going to be able to stop the terrifying demise of the planet, right? We need to get world leaders and politicians and big business and those big decision makers to come together. Because without them, we’re not going to be able to do it. That personally makes me very angry and upset and not listened to. So, I fully understand why people are on the streets protesting about that.

PETER: I understand that PensionBee have been supporters of Make My Money Matter, that’s a recent movement has gained a lot of traction. Tell us a little bit more about the involvement in that.

CLARE: Yeah. So, when it comes to the Make My Money Matter campaign, we were one of the founding pledge partners of that campaign. And I think that we support all these campaigns that are raising awareness of the issue, particularly new voices, and particularly to new audiences, which I believe that campaign is doing through Richard Curtis, who I don’t think most people a couple of years ago would have associated with pensions, let alone be someone telling you that it’s 21 times more effective to move your money to a green pension than it is to stop flying and go vegetarian and switch energy provider. And that’s kind of staggering to think about, so I think that the problem we have is that trillions of pounds of money is invested in all these companies around the world. And we do need to use that money more effectively, to drive positive change in those companies and we fully support that the more campaigns that are out there to deliver that message to new groups of people, obviously, the big debate is whether we should be selling our shares in fossil fuel companies, or whether we should be staying invested. But I actually think we need a mix of approaches because one size doesn’t fit all and I think for maximum appeal, we need that range of options and that range of voices and that’s, I think, we’re really pleased to see all of these awareness raising campaigns.

PETER: But focusing on your fossil fuel free plans specifically, can you expand a little bit more on how that’s actually invested, and how customers can be sure that it’s not going to be greenwashed?

CLARE: Yeah. So, in 2020, we started to get customers telling us again, and again and again, that they didn’t want to be engaging with oil companies any longer, they just didn’t believe the spin. So, we launched a big public campaign, actually in 2020 to try and get this new type of fund launched. The plan is still quite innovative, because firstly, it excludes all fossil fuel companies and also all companies that provide services to the fossil fuel industry. But it also excludes tobacco companies, because that’s another sector that our customers said that they didn’t want to engage with. And it also removes a couple of other kind of problematic sectors. So that’s weapons and violators of the UN Global Compact. So once those companies have been excluded, at the outset, it then invests in this new type of index. So, this is, it’s called a Paris Aligned Index. What the index is doing is it’s taking thousands of global companies. And then it assesses them for how well prepared their businesses are for climate transition, over weights or invests slightly more in the companies that are better prepared, and it invests slightly less money or underweights companies that are not. And so, it’s a kind of a more sophisticated approach to traditional indexes where a traditional index will just track like FTSE 100, which is the 100 biggest listed companies in the UK, even though that might sound a bit complex. It is sophisticated, actually, but the plan is quite simple to understand. We publish the full list of companies on our website every month of more than 1000 companies that invest in any one time you could. You can look closely at that. Because obviously green washing is a really important topic.

We do feel very strongly about that, and we felt really strongly about it when we were looking at the market to see what was on offer back in 2020. And there were just so many complicated plans there with complicated secret data and ratings and which you suspect are sometimes being a bit gamed by different companies. We wanted to give people the confidence that they know what they can expect this pension to invest in and a kind of clean way to look at the ingredients list for the allergens that you don’t want.

PETER: So on that point on exclusion, Clare, there has been a lot of change, I would say, and a shift in sentiment around this topic of climate change. There’s been a lot of really weird weather, droughts, floods, all kinds of stuff going on. We’ve had Cop 26 as well. I wonder if you see that reflected in your customer surveys and what your customers are telling you at this point in time. I know you did one recently. Could you tell us a little bit more about that?

CLARE: Yeah, we conduct a lot surveys, actually working on another one right now. So, we surveyed the same group of customers twice, in 2020 and 2021. And in 2020, we found that only 34% of them wanted to remove oil complete from their pensions. But we found that had gone up to 56% by 2021. We also asked question around - I mentioned the UN Global Compact. So that’s a set of principles around trying to encourage responsible business practices. So, it focuses on corruption and human rights abuses in supply chains and labour issues. 90% said that they did not want to be invested.

PETER: Wow. So, for customers who do want to go further, what PensionBee plans are there at the moment that you have to cater to those customers?

CLARE: Yeah, so there was a group of customers who were kind of really speaking loudly saying that they want to go further, and they want to go faster. So, we are now looking to bring on a new plan next year, it will cater for that group, and it will be more concentrated in its approach. So, it will only probably invest in companies that are having proven impact.

PETER: Do you think that with recent campaigns, like Make Your Money Matter and Extinction Rebellion, that sustainable investing is here for the long term? It’s here to stay.

CLARE: Oh, absolutely. I mean, the government is making changes at the moment to the way that pension schemes and companies are run in the UK. And so all big companies will need to report on climate related financial disclosures, and on the impact that their pension scheme or their company is having on the planet. So, this is called TCFD. It’s called the Task Force on Climate Related Financial Disclosures. It means that all companies in the future will need to demonstrate that they have a strategy to survive in a world that is changing as a result of the climate change, and they need to do that by data reporting on certain kind of climate related metrics. You can pretty much work out which companies are not going to survive in the future based on their inability to adjust. So, I think the short answer is yes, sustainable investing is definitely here to stay. I think the bigger question really is around the pace of change.

PETER: That’s great. Thank you so much, Clare, and thank you for your time today. Really appreciate you spending this first episode with us.

So, we’d love to hear from you, the listeners. If you have any questions that are pension saving or retirement related, please send them to [email protected]. That’s [email protected]. If you prefer, you could Tweet us @PensionBee and we’ll do our best to answer them in our next episode.

£30,000 a year in retirement income from contributing just £55 a month

PETER: Now, one big problem that many people have is knowing exactly how much they need to put into their pension pot. There are a lot of really big numbers that are often bandied out there and it can make it feel impossible if you’re just a normal person, especially if you have financial commitments in the here and now. If that sounds familiar, then our next guest, Damien Fahy might be able to help you feel a little bit more hopeful. He’s the founder of popular personal finance website Money to the Masses. Damien and his team help over 3 million people through the minefield of personal finances every single year. Welcome to the show, Damien. Could you tell us a bit about your background in the financial space? And what prompted you to create Money to the Masses?

DAMIEN: Yeah, Money to the Masses is an interesting story. My background is in finance. So, I used to work in the city of London and worked for a firm that gave financial advice to magic circle law firms, which is basically the people who earn a lot of money. So, they were earning sort of seven figure salaries a year and I got to the point where it wasn’t always fulfilling. I liked the problem-solving aspect of it, but I wasn’t changing the world. And I had bit of an epiphany, really, my first daughter was born and the day I went back from the paternity leave, I met my brother. I’ve got a twin and we had lunch and I was sitting there thinking like “Look, is it worthwhile? Is it changing people’s lives?’ and I didn’t really feel I was. I just making rich people richer. Then the idea of just writing came to life. Money to the Mass was born as a blog. That day, I went back home, started writing and what I was doing essentially was giving the information that would cost hundreds of pounds an hour that I was being charged out for by my company. I couldn’t even afford that, I lived in a terraced house. I mean, this shows you sort of how crazy the world of finance is, you can work in it, but can’t afford the knowledge that you have if you wanted to pay for it. And so, I decided to start putting that information online for free and then fast forward 4 years from then, I quit my job.

I always tell the story, the most popular email I ever sent had the title, “I quit”. I think that everybody thought I was quitting Money to the Masses, but I was quitting my job to do it full time. And that was a moment where you have to just go for it. I mean, you’ve had similar experience yourself and here we are 11 years later and we’re now, as you described, used by 3 to 4 million people a year. We have podcasts, we do live shows, there’s a whole host of things that we do.

PETER: Yeah, you’re right, I did leave a really secure job to do what I do now and the comfort of having auto-enrolments and defined contribution payments into a pension. But I love what I do now in the education space, and that leads us on to a recent episode of your Money to the Masses podcast where you explored the idea of being able to generate the equivalent of £30,000 a year in retirement income by contributing as little as £55 a month. This sounds incredible, and maybe a little bit too good to be true for the listeners. Could you explain a little bit more how you got to those numbers and how it’s actually possible?

DAMIEN: Yeah, what happens is, people have a retirement plan. And they think, “How much money do I need?” and then the numbers are incredibly large. So, you just present them with an Everest that they’ve got to climb. If you want people to take action, you need to be able to give them a motivation, that the problem is surmountable. It’s that old proverb, isn’t it? The Chinese proverb: A journey of one thousand miles begins with a single step. It’s why you wanted to do - was to say to somebody, “Look, you have this dream of a £30,000 a year retirement income”, and that was based upon the average wage in the UK. And let’s reverse engineer it. It sounds like a lot of money when you’re aged 65. But the reality is are, your circumstances are gonna be very different to what they are today. So firstly, you probably won’t have a mortgage. That’s your biggest bill for most people. So actually, to live a lifestyle with an equivalent salary of £30,000 a year in retirement, you actually need two thirds of that, it works out to be £20,000 because history suggests that two thirds of what your salary you wanted at retirement, your final salary would give you the same lifestyle you had just before retirement.

So now we’re already on £20,000. If I go back one step, if you were trying to produce a £30,000 a year income at retirement age 65, then you would need a pot of around £900,000 or something like that. Now, if you’re 30 years old, it would mean you’d have to put £1500 a month away in a pension to achieve that. Now, who’s going to do that at 30 years old? As you get older, that number gets bigger and bigger and bigger. So, you can see, the first thing I did was go, “Well, look, you don’t need £30,000, let’s go back to the £20,000, because that’s gonna give you the equivalent. But then there are lots of levers you can pull in pension planning. It’s not just about how much you put in. For example, when you get to retirement, you have options, you’ve got this pot of money. Now you have a choice that you can take your 25% tax free cash from it. And then you can use the rest if you want to, to go into drawdown, producing the income, whatever you want, you don’t have to do that. Because you could instead choose to use the whole pot to provide your income stream. And if you’ve paid off your mortgage, then you might be okay not having that tax free cash amount.

The other thing people overlook is that you do get a State Pension. You will have a State Pension of around, at the moment, about £9,339 a year. So already I said you’ve got to get a £20,000 a year income. I’ve already now knocked that down to actually you’ve got £9,000 coming from the state. So now you’ve only got to get about £10,000 It’s actually £10,651. Now I won’t bog people down with too many numbers but that already brings the pension pot you need to generate that £10,000 a year, just over £10,000. The pot you need at 65 has now dropped down to £213,000, around that number. That’s a long way off the £900,000 we started at the beginning this conversation.

And so, it’s now starting to become a bit more achievable. Now what does that mean in terms of contributions? If you were 30, you’d have to put in £400 a month, if you’re 40, because you started later, less compounding - you’re £600 a month. If you’re 50, then of course you’re leaving it later, that’s about £1,100 a month.

Now some of those numbers still seem a little bit high. But the thing is, when you have a pension, you’ve got to engage with the plan itself. You can’t just think it’s this mysterious pot your money goes into. You’ve got to look at charges. Now if you look at the average across the industry, it’s at least 1.5% per annum you’re going to be paying probably more than that a year. Now, if you can reduce that down, which you can do by looking around. You could bring that down way below 1% per annum because they compound too. You might have the magical compound on your contributions but charges work - it works in the same way for them so it’s a negative.

So, by reducing that down, that has a big impact on the fund size that you need. You need a smaller fund size. Now, if you then also increase your investment risk. Now if you’re 30, you’re going to have huge economics, bust and boom stock market crashes, you can afford to take more risks. Now, this isn’t advice. This is just historical fact. So, you can take more risk. So, what happens with a lot of people’s pensions, they end up in a default fund of some kind, which is just some sort of middle of the road risk level fund that everybody will end up in. What you need to do is engage with the funds that are underlying and choose one that you like and by doing that, you will end up increasing the eventual pot size you’ll have because you’ll get a bigger return. Now, if you look at the facts and figures out there, broadly speaking, equities give you about a 5% return on top of inflation every year. That’s the historical average. There’ll be years they fall 20%, 30%. There’ll be years they rise 20-30%, but on average it’s about 5%. If you took a bit more risk in your portfolio, you could maybe knock that up by 5, 6, 7, 8% on average per annum on top of inflation. It sounds punchy, but you’ve got a long timeframe if you’re young.

Now if you do that, then that starts to bring down the amount of money you need to invest in your pension a month. The last number I threw out here about a month, we said £400 a month for a 30-year-old, £600 a month for a 40-year-old and £1100 for a 50-year-old. By doing those levers, pulling them I’ve just mentioned, we’ve now got down to £110 a month for a 30-year-old, £250 a month for 40-year-old and £650 a month for 50-year-old. They’re much more achievable, and the thing is we don’t have to stop there because that’s the gross contribution. But the tax relief you get - because this is a wonderful world of pensions - that you get a Brucey bonus from the government. Yes, free money. So, if you ensure that you claim back the tax relief that you’re owed, then you will actually reduce the amount it’s costing you out of your net pay. That’s your take home pay, that’s what most people are concerned about.

And, of course, then when you throw in the idea of auto-enrolment, then there’s some real magic happening now, because auto-enrolment, if people don’t know, it’s basically the scheme that when you join a job and you’re employed, then your employer has to pay 3% of your qualifying earnings. And you have to pay 5% of yours into this pension. You can opt out, but the advice is you wouldn’t want to. I mean, I can’t give financial advice, but I think you’d be mad if you opted out of auto-enrolment. It’s free money, isn’t it? Again, it’s free money, you should stop thinking of it as like money that you haven’t got. Do you know what I mean? Money that’s coming out, because that should be part of your negotiation when you go in there. Yeah, okay, that’s auto-enrolment “Yeah, I’m gonna get that. this is the amount I’ll get put in my pension”. And there’s some great books out there. If you ever read a book called, “The Richest Man in Babylon”, I only throw that one out there because it’s, have you read it?

PETER: I have, yeah.

DAMIEN: What did you think of it?

PETER: It’s a brilliant book, very fundamental things that we just don’t think about too often. And I think whilst they’re very, very simple and basic concepts, you don’t know what you don’t know until you know, you don’t know it.

DAMIEN: Yeah. And for people listening who haven’t read “Richest Man in Babylon”, it’s almost biblical, isn’t it to the narrative? It’s sort of parables, isn’t it? And fundamentally, there are money lessons in there. For people who don’t want to read money books, this is one to start with. But the reason I bring it up, because one of the key messages in there is people should be putting away 10% of their wealth, if they want to be able to get rich, and be the richest man in Babylon effectively. Well, if you look at auto-enrolment, the magic numbers are occurring. It’s 5 there and you can get your employer to put in 5, you will be getting 10% of your money put away for the future, which you can’t touch. And of course, what happens when you pull that together, then you can get to a stage where you can get the equivalent and you add in the State Pension.

So, you get back to the equivalent of a £30,000 a year’s retirement income, then it’s only costing you £55 a month because when you add in the contribution from the employer, this is if you’re age 30, which is £41.25 a month and then the tax leave you also get which is £15.75, then that’s where the magic happens. So, all it is, is you’re pulling certain levers, but what I’m trying to demonstrate to people is that the Everest of the £30,000 a year retirement income. If you gave that to me, I’d be sitting there thinking “I’m never gonna do that”. But if you make some smart choices, you look at what it’s invested in, you look at how much you’re being charged, you join your auto-enrolment scheme at work if you are employed and you’re eligible, and you make sure you put in as much as you can as well. And the other thing to do, ask your employer to match your contribution, all they could say is no. So those sorts of things suddenly make it much more accessible, and I hope people can get a bit more excited about it.

PETER: I think there’s a really good point there. And I think ultimately what I’m hearing is that for listeners, never to assume that it’s too late. Funnily enough, I actually showed the numbers to my partner, and she was like, “How can I get that?” And it’s that interest in actually engaging in the numbers, because I think you’re right. Small, small steps get you a very, very long way over time. But you have also mentioned things like the auto-enrolment, I just want to talk a little bit about that. Do you think that auto-enrolment is something that people kind of either don’t understand or completely miss the impact of when we talk about retirement and pensions?

DAMIEN: I think there’s a danger that employers feel it as a bit of a burden. So therefore, they’re not engaging with their employees about that. “This is amazing, this thing I’ve got to do for you, because I really care about you. I want you to be around working here to retirement”. But this isn’t the answer on its own. And you need to be putting more yourself, don’t forget going back to what I was talking about. I was basing it on the assumption you’re going to get a State Pension. And I think that is an assumption that you can’t, if you’re young, I think that’s one that is questionable.

PETER: Do you think it will be around long term for maybe younger listeners?

DAMIEN: Debatable, I think not in its current form. I think it will end up being means tested, just to get people who are young, who might not understand how it works. The State Pension, when you pay National Insurance contributions, they’re not going into a pot, with your name on. It’s just going into a big fund. Imagine a cash machine where there are people who are retired, withdrawing money from the cash machine, and everyone who’s paying National Insurance contributions are still working, and they’re the people who are filling up that cash machine.

There’s two queues, and what happens when you reach retirement age, state retirement age, you go from filling up the cash machine, and then you go and join the line where you’re withdrawing it. Now, if you think about that, that line is being skewed because more people are joining to withdraw the money from the cash machine and there are less and less people who are actually paying tax because our population isn’t expanding that quickly. If you’re going to make the system work, then something’s got to give. And that’s either you stop giving people as generous a pension. I’m not saying it’s particularly generous, but you don’t give them the increases. But that’s not going to go down very well, because the people in the front of the queue drawing the money are the majority and they will vote. And of course, the people who are paying National Insurance contributions currently that are funding the State Pensions of today, they will have to be probably charged more. And that is again, not going to go down too well. So, I think what will happen is you’ll probably get some kind of means testing at some point. So, I don’t think it will exist in its current form.

PETER: And last but not least, in each episode, we’re going to be asking our special guest to give our listeners their top three pension saving tips, what would be yours Damien?

DAMIEN: Okay, first of all, I would say engage with auto-enrolment, because, as you said, it’s free money. And I think you need to start now is the other tip. So, it isn’t about how much you put in, it’s the impact of starting to put into it. So, it’s just the start, don’t think that’s too little. So, I think that’s the second one. And the third one is to engage with it, manage it, look where your pension is invested, and make life choices about it, whether it’s about the risk, or that you want to make a difference with your pension. So don’t just ignore it and think that it’s something that someone else will look after for you. That’s not the case if you’ve not got a financial advisor, which most people don’t. I think if you do all three of those, you’re probably going to be in a good place.

PETER: Perfect. Thank you so much, Damien, for coming on to the show. If you’re not a reader or listener already, I would strongly encourage you to head over to moneytothemasses.com to get the latest personal tips from Damien and his team. Please remember anything that we discussed here in this podcast should not be regarded as financial advice. As always, when you’re investing, your capital is at risk.

So that’s it for the first episode of the Pension Confident podcast. Thank you so much for listening. And again, we really like to hear from you so please get in touch with us by emailing [email protected]. That’s podcast@pensionbee.com or on Twitter @PensionBee. We’ll be back in the new year with an episode every single month and it’s your questions and feedback that will drive what we discuss moving forward. This is your platform to put those perplexing pension questions straight to the experts. Until next time, keep saving and stay pension confident.

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Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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