E11: How to prepare for a happy retirement with Faith Archer, Mark Smith and Priyal Kanabar

Pension Confident Podcast

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24 Nov 2022 /  

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The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 11 here, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Welcome back to The Pension Confident Podcast with me, Philippa Lamb. This month we’ve got a question for you, what does a happy retirement look like?

The good news is that we’re living longer than we used to. When Queen Elizabeth was born in 1926, average life expectancy for women was just 62. Now it’s 83, so most of us can look forward to around 20 years of retirement or even longer. But what is retirement nowadays?

Well, it might be stopping work completely or working part-time, volunteering maybe, or even starting your own business. So, today we’re going to look at visualising your ideal retirement and the financial and lifestyle steps to make it a reality.

We’ve got three guests here today, Financial Journalist and Founder of Much More With Less, Faith Archer.

Hello Faith.

FAITH: Hello.

PHILIPPA: Mark Smith’s in the studio too. He’s Head of Media Relations at the Pensions and Lifetime Savings Association. That’s the PLSA. Hello Mark.

MARK: Hello.

PHILIPPA: And lastly, PensionBee‘s Senior Engagement Manager, Priyal Kanabar.

Priyal spends a lot of her time talking to customers about their ideal retirement, so she’s the perfect person for today’s discussion. Hello Priyal.

PRIYAL: Hello.

PHILIPPA: Before we start, please remember, anything discussed on this podcast shouldn’t be regarded as financial advice and when investing, your capital is at risk.

What could retirement look like?

Now, I know everyone around the table is used to talking to everyone else about their pensions and retirement, but I’m intrigued to know about your own plans. Mark, have you got a vision of your retirement years?

MARK: Yeah, I suppose I have. I’m 35, so hopefully retirement’s still a long way away. But I’ve got this fantasy of retiring early, perhaps going down to part-time work at some point as I get older. Maybe money’s less of a worry as I get older. And getting some space in the country somewhere, I know my partner would love to have some animals. So, just winding down and doing something like that.

PHILIPPA: You’ve got it all worked out. What sort of age are you thinking?

MARK: Oh, as soon as I can afford it.

PHILIPPA: Really?

MARK: Tomorrow if I can afford it. I absolutely can’t afford it tomorrow, but I want to be done working. I want to have the option to choose when I work, not have to work.

PHILIPPA: Okay. I think we’re clear about what Mark wants. Priyal, have you got an idea?

PRIYAL: It’s actually the opposite of Mark. I love working and I can’t see myself not working, especially for around 20 years in retirement. And I want to feel financially secure and I want to spend lots of time with people that I love.

PHILIPPA: This sounds like a packed program, Priyal. That’s all I’m saying, there’s only so many hours in the day! Faith, tell me.

FAITH: I think in some ways I don’t see my retirement as being too different from the life I lead right now. We’ve already moved out to the country, I’m self-employed and I think I’ve got quite a good balance between work and my own time and I enjoy what I do. I’m not sure I want to quit it completely. But the big thing I would love to do more of is travelling. It’s something that my husband and I used to do a lot of pre-kids. And obviously with the pandemic, that’s been reigned in massively. So I think carving out more time, hopefully if we’ve got enough money, to go travelling.

PHILIPPA: I’m on exactly the same page as you about that, working and travelling. Yeah, it’s a lovely combination, isn’t it?

Now look, Priyal, as I said, part of your role at PensionBee is talking to customers about their pensions and their retirement ambitions. What sort of things do they tell you that they want to do?

PRIYAL: Yeah, I’m very lucky. I get to spend a lot of my time talking to our amazing customers and it’s really interesting. A lot of them say they can’t imagine stopping work, but they want to focus on work that they have more passion for. So, Dermott’s a customer in his 40s, and he’s from Zimbabwe. And he’d love to open up a shop where he can sell Zimbabwean food and not run it for a profit, but just to benefit his community by bringing them the food. And another customer, Joe, recently retired early as he was kind of on the cusp of his 60s, and he married his wife at that time. He’s known her for 25 years, they got married and they’ve got lots of travels planned for their retirement.

So, I hear a variety of stories and I think what’s common is that all the customers hope to be very financially secure so that they can do what they dream of doing.

PHILIPPA: Yeah, would it be fair to say, I mean our expectations have grown, haven’t they, as our standards of living have grown over the years? And we don’t just want to get by in later life. I think most of us want to enjoy ourselves, don’t we? We’ve all said it around the table, our plans aren’t going to be that cheap are they?

PRIYAL: I think it varies. In some ways, we’ve got higher expectations and enjoy a higher quality of life. And certainly people of the boomer generation are very lucky because they were able to benefit from house price inflation, wage growth, and defined benefit pensions. Not all of them, but more so than millennials, which is my generation. I’m 31.

Whereas for my generation, we’re worried about the housing crisis and wage stagnation. So I think a lot of us are worried about whether we can even afford to have a retirement.

How to plan and save for that happy retirement

PHILIPPA: Mark. Let’s think about when people can retire. Because, you said you want to retire as soon as you can. Largely there’s no mandatory retirement age for most people nowadays, is there? So it’s kind of different to how it used to be. But there are rules, aren’t there? About when you can claim State Pension, when you can access your personal and workplace pensions. What are they?

MARK: Yeah, that’s right. I think that kind of carriage clock retirement where you work in that one job - the only job you’ve ever had, for the rest of your life - and then you get given a carriage clock and sent on your way with your gold plated final salary pension, those days are probably behind us.

PHILIPPA: That’s my parents’ generation. Yes, a long time ago.

MARK: Mine too. Yeah, you’re right. Most of us won’t be so lucky. But most people, I think, will probably be in a position that think they might be able to afford to retire when they get the State Pension. If they are eligible for it, the State Pension still makes up a really big proportion of most people’s retirement income, when they get to that retirement age. To be eligible to claim the basic State Pension, you’ll need 10 qualifying years of National Insurance contributions and for the full State Pension, you’ll need 35 qualifying years of National Insurance contributions.

PHILIPPA: Just remind us how much it is nowadays?

MARK: The full State Pension is £9,627.80 per year, which is £185.15 per week (2022/23). Following the Autumn Statement on 17 November, this is rising in line with inflation in April 2023 to £10,600 per year, which is £203.85 per week. Depending on what age you are now, you can take it between the ages of 66 and 68 - currently you can take it at 66, by 2028 this will rise to 67, and by 2037 this will rise to 68. But of course, you can flexibly take some of your private pension and your workplace pension when you get to the age of 55 (rising to 57 by 2028).

But there are lots of rules governing when you start accessing that, and then you’re limited to how much you can contribute to your pension afterwards. So you need to think really, really carefully before you start accessing that, because it does sort of change your circumstances quite drastically. But it’s quite common for people to start accessing some of that and moving to part-time, perhaps trying retirement out in a sense, and using that to supplement their income that they’re getting from whatever work they’re doing.

PHILIPPA: I mean Faith, if people are visualising their later life and when they might want to retire, have we got a shopping list of a few things they should be thinking about for sure?

FAITH: When it comes to planning your retirement and how you’re going to fund it, there’s a whole bunch of factors that you have to weigh up.

So, some of it’s when you start your retirement. So what age you’re going to retire, if you’re going to work part-time or if you’re going to stop completely. You’re also thinking about your life expectancy. I don’t know exactly when I’m going to die, but you can certainly kind of estimate how long your money’s going to need to stretch. You can toggle around with what income you can take - because if you take more income earlier rather than later, there’s more chance of running out of it.

And then there’s a whole range of factors that will impact you. Depending on how you take your money in retirement, what the stock market does, what inflation does, if you’re going to have to cope with rising prices, how the tax is going to be taken off your pension. And also thinking later on, whether you want to leave any money to your children.

PHILIPPA: So the whole thing can seem quite overwhelming, there’s quite a lot to think about?

FAITH: Definitely.

PHILIPPA: But handily, Priyal, I’ve been on the PensionBee website. There are a lot of tools and tips on there, aren’t there? Do you want to run us through what’s there?

PRIYAL: Yeah, a first powerful step is using the pension calculator you can use the sliders to put in when you want to retire, at what age, what income you expect to receive, how much you’re currently paying in, and how much you already have. And that can help you work out how much you need to pay in every month. Now, it’s not that the first time you log in you’re going to have the perfect plan, but it’s a process and it’s a habit, and getting into that habit can help you plan and save.

PHILIPPA: It’s a bit of a self education process, isn’t it? So it struck me when I went onto the site, as you said, there’s loads there. There’s the Pension Academy video series, there’s blogs and what struck me was that there’s really basic things on there. So, if you know nothing about pensions, you can go there and just start to understand what this is all about. You don’t need to know anything?

PRIYAL: Exactly.

PHILIPPA: The main thing is to start.

PRIYAL You can find our pension calculator. You just need to type into Google - PensionBee pension calculator. It’s amazing hearing customers say that the transformation, the level of confidence, that they develop through engaging with the content on the website. And we’ve really been focused on creating as simple an experience as we can because we feel that’s the way to help people develop that confidence. Pensions tend to be way too complicated and they really don’t need to be.

PHILIPPA: So Mark, let’s get down to the harder things. Most of us underestimate how much money we’re going to need, don’t we?

MARK: Yeah, I mean, working out how much you need is really, really difficult. When you ask anybody now, I mean how much do you spend in the average year now? I mean, most people won’t be able to answer that question. It’s a really difficult thing to work out.

In recognising this kind of shortcoming, in people being able to understand this stuff, the Pensions and Lifetime Savings Association, a few years ago, developed the Retirement Living Standards. Now when I joined the PLSA, these things were still under construction and I was really excited to get my teeth into them as someone whose job is to communicate complicated, sometimes confusing information about pensions to savers, I really sensed that these would really be able to bring things to life.

PHILIPPA: Yeah, these are really nice because they’re really understandable. Tell everyone how they work.

MARK: So they’re based on goods and services that people would typically buy or use when they’re retired and they’re pitched at three different levels - minimum, moderate and comfortable.

And they allow you to go on and have a look at the types of things that you might be able to enjoy doing at three different income levels. So the annual budget for the minimum standard is £10,900 for a single person, and £16,700 for a couple. And that’s going to include a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. But, on the other hand it’s probably not gonna include the budget to run a car. Now that level through the combination of a full State Pension, and normal Auto Enrolment that you would get in your workplace pension, that level should be very achievable for most people. We projected about three quarters of single employees are likely to achieve that level. Everyone who’s in a couple should be able to reach that because they are likely to share their costs.

PHILIPPA: Okay, so that would be a comfortable minimum. And if people felt they wanted to have a bit more wriggle room to enjoy themselves, what’s the next level up?

MARK: A bit more? So the moderate standard is £20,800 for a single person, and £30,600 for a couple. Now in addition to the minimum lifestyle, that’s gonna provide a little bit more financial security and more flexibility. For example, you could have a two week holiday, perhaps in Europe, and you’re going to be able to eat out a few times a month rather than just once a month. So a bit of a nicer lifestyle, but not shooting the lights out.

Not luxury, by any stretch of the imagination.

PHILIPPA: Yeah. And higher up?

MARK: And higher up, what we call the comfortable retirement living standard. Now I think this is probably really quite luxurious indeed. So you expect to enjoy regular beauty treatments, and theatre trips, and three week holidays to Europe, perhaps twice a year. Now this isn’t something that everybody’s going to want to be able to do in retirement. But at that level, it’s going to be £33,600 for a single person and £49,700 for a couple. So you can already see this is already reaching quite a luxurious standard.

Now, I should point out that these figures, because we want to keep them as universal as possible and as easy to understand as possible, they don’t include housing costs. So at the moment when people retire, still, most people would’ve paid off their mortgage and are likely to own their own home. But of course, societal trends are changing. So if you think you’re going to be renting at that point, you need to take that into account. Of course it’d be impossible for us to say the amount. That varies from county to county. So it’s really difficult for us to include that. So we’ve kept it as simple as we can.

There’s too much complication in pensions communications, I think, as it is. So housing’s kept out of it for now.

PHILIPPA: But useful, to kind of give you a sense of how much money you might need. I mean Priyal, you alluded to this earlier, what are your customers saying about their financial worries? It’s a tricky time. Are people worrying more than they did, that they won’t be able to save enough for retirement?

PRIYAL: Yeah, I mean we already saw high levels of consumer debt amongst people who are approaching retirement age. Another thing that I’m very aware of is the gender pension gap. Women tend to have different working patterns in terms of paid employment and tend to be assigned the main kind of care role.

PHILIPPA: Yeah. Childcare and healthcare. We talked about this on the podcast before actually, the gender pension gap. It’s significant, isn’t it?

PRIYAL: It really is. And while society’s attitudes have moved on and are much more in favour of gender equality, with women being appreciated in the workplace, many policies haven’t moved on. But yes, I’ve spoken to many women who are worried about the time they’ve had outside of employment, doing unpaid care work.

PHILIPPA: And they haven’t been contributing to their pension?

PRIYAL: Yes. And they’re looking at their pension pot when they’re 50. And often when they’re around that age, they also get assigned the care work for elderly relatives. So that has an impact on their pensions. So that’s a concern. Another concern is the cost of living crisis. People who are at an age where they want to make massive contributions into their pensions because they’re approaching retirement, maybe in their late 40s, early 50s and they can’t because of the pressures of the current crisis. And then we also have a growing number of people who can’t afford to buy their own home. So yes, many concerns.

PHILIPPA: I mean Faith, we’ve been talking about various different sorts of pensions. I’m thinking we should probably actually just run through the main ones. Can you give us a translation on what the State Pension is? Not everyone knows what that is. What is it?

FAITH: The State Pension is money you get from the government provided that you’ve made National Insurance contributions which are paid out of your salary, or your income if you’re Self-Employed. You need to rack up a certain number of full years of National Insurance contributions to qualify for a full State Pension. It’s currently 35 years for the full State Pension and 10 years for the basic State Pension. So the good thing about the State Pension is that typically, it increases. It goes up, at the moment, it goes up in line with the triple lock, which is the largest of three figures, 2.5%, inflation and the increase in average earnings. And it’s the highest of those three?

MARK: That’s right. Yeah. The highest of; inflation, wage growth or 2.5%.

PHILIPPA: And our new government is considering this right now?

FAITH: They’re weighing it up. I don’t think it’s in their interest quite yet to scrap the triple lock. But the point is, it goes up with inflation. The other kind of pension you’re going to have is a pension from your workplace, if you’re an employee. Once you earn over £10,000 in the UK, are at least 22 years old, and have not yet reached State Pension age, there’s Auto-Enrolment. That means that you’ll automatically have money towards your retirement savings unless you choose to opt out. That has the major advantage that you’ll get employer contributions and free money from tax relief. If you earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you, but if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf. Opting out of a workplace pension is like turning down a pay rise.

FAITH: Now the workplace pensions, they used to be a ‘final salary’, defined benefit, where the money you got in retirement was related to how many years you’d paid in and what your salary was. And that was really nice.

PHILIPPA: Yeah, those days are long gone.

FAITH: You knew, you were just kind of guaranteed a certain amount of income.

PHILIPPA: You knew what you were gonna get and it was just happening.

FAITH: Yeah. And there are some people that still do benefit from defined benefit pensions, particularly if you work for the public sector. But it’s a much smaller proportion of the population.

PHILIPPA: Very few now.

FAITH: And, the rest of us have what’s called defined contribution pensions. Whether it’s a workplace pension or, whether it’s a private pension. So what you get in retirement depends on what you paid in, and what the stock market has done.

Things to think about when you’ve nearly reached retirement

PHILIPPA: We should talk about compounding shouldn’t we? Because this is the thing that’s not talked about enough. The joys of - the sooner you start and the longer you save, the better it gets. Just explain compound interest and how that plays in.

FAITH: Well, I think everybody’s familiar with the concept of interest. You put £100 in a savings account, maybe you get 1% interest. So at the end of the year, you get £1 added on. Brilliant, there’s your 1% interest. But if you don’t spend that money, if you leave it in the account, at the end of the next year, you don’t just get another £1 added to your £100, you’ll also get interest earned on top of the interest.

PHILIPPA: On your pound?

FAITH: So what it means is, your money goes up, not in a straight diagonal line, but it’s a curve. And the longer you leave it, the more the curve will tip upwards, and the more money you will have amassed.

PHILIPPA: So the younger you start, even if it’s tiny amounts, the better?

FAITH: Absolutely.

PHILIPPA: As time goes on and you get closer and closer to retirement, you’re going to be thinking about how you might start withdrawing from your pension. We’ve talked about this a little bit already. Before you start doing this, if you’re 50 or over, I think this is new, isn’t it, Faith? Your pension provider’s now required to suggest that you have an appointment with an organisation called Pension Wise. Now what is Pension Wise? I know you’ve had one of these meetings, tell us about that.

FAITH: I have, I’m now over 50 and I’ve actually done my Pension Wise appointment.

PHILIPPA: It’s okay Faith, that’s both of us. We can both admit to being over 50.

FAITH: Well, I’m over 50 and proud. I’m excited. I’m getting closer to getting my hands on that pension money.

PHILIPPA: Yeah.

FAITH: All those years of saving. And finally I might get to spend some of it. But it really is a good idea to talk to Pension Wise before you start spending your pension money. It’s a government body. The appointments are completely free. I’m gonna say that again, the appointments are free! And what Pension Wise can do is give you guidance about your pension options.

PHILIPPA: This is a great starting point.

FAITH: It absolutely is. I think mine was about 45 minutes and I was actually really impressed at how clearly they explained what the options were.

PHILIPPA: I mean, they didn’t tell you anything you didn’t already know, I’m assuming? But you thought it was a really good process?

FAITH: I thought it was a really good process, I think they covered a lot of ground during the interview. And I think crucially, one of the reasons I recommend anybody over 50 to have a Pension Wise appointment, is that if you actually put the preparation in beforehand, you are going to get the most out of the interview. If you actually go through the exercise of working out what money you have.

So, track down where your pensions are, where they’re held, in what funds, what the charges are, what else you have in terms of any cash savings, ISAs, investments. Actually look at your budget and work out what you spend now and how much you might like to spend in retirement. So just doing the exercise of sitting down, getting that information together, starting to think about what you would like your retirement to look like. That preparation for the interview is enormously helpful.

PHILIPPA So Mark, I’m gonna put you on the spot now. If you decide you’re ready to start withdrawing from your pension, it can be tricky to work out exactly how you want to do that and how you should do that. Can you just run us through the various ways you can take money out of your pension pot when the time comes?

MARK: Yes, that’s right. So, first and foremost you have to be 55 (57 from 2028) to start withdrawing from your pension. It’s not always advisable to start withdrawing at 55 because, if you want to carry on working and contributing to your pension, then you are limited at that point. So first thing’s first, make sure you actually need the money, or that you actually want to start accessing the money.

PHILIPPA: So, don’t take it just because you can?

MARK: Don’t take it just because you can. Especially to pay off, frivolous - I say frivolous things - but to buy luxuries, don’t take it out and buy a sports car for instance. Just because you really want one.

PHILIPPA: People do though, don’t they?

FAITH: Do they?

MARK: The data says that fewer people do than you’d think.

PHILIPPA: Oh you don’t think so? You read about these things, but is it not true, Faith?

FAITH: I think anybody who’s spent years and years paying their money into a pension does not suddenly change their complete financial personality at 55 and go, whoa, I’m gonna blow the lot!

PHILIPPA: So not even people who’ve been in a workplace scheme where they didn’t really feel they were having anything to do with their pension payments. Because you’re quite detached if you’re a workplace scheme, aren’t you?

FAITH: I think it depends on how much you’ve accrued and I think if your pension is a relatively small amount, £5,000 or £10,000. Then, that might not feel so significant. But anybody who’s built a bigger pension, I’m willing to bet that they think about it slightly more.

PHILIPPA: Okay, so Mark, I’m gonna go back to you because you’ve got more to tell us, haven’t you? So, consider not taking the money out unless you need it at 55.

MARK: It might be that you’re older, you’re closer to retiring and at that point you can take 25% of your pension tax free. It’s a really good idea to pay down things like debt at that point. Paying off your mortgage might be a good way to set yourself up for a decent retirement.

Then with the money that you’ve got left, there’s several ways you can take that. You can either use that money and buy what’s called an annuity. Now, essentially you swap a lump of money for a guaranteed level of income.

PHILIPPA: You can’t change your mind about that though, can you? Once you’ve brought that annuity, that’s done. There’s no going back?

MARK: Yeah, you’ve got the guaranteed amount but it’s irreversible. That’s right. The other way you can access your money is what’s known as drawdown, which is where you leave the money you’ve accumulated in some sort of investment pot. So some of it still remains in the stock market and in other types of investments that your pension fund normally holds.

So it has the potential to grow and you draw down from that flexibly, as much as you need. And the trouble with this strategy is that the amount you get isn’t guaranteed. So it fluctuates with how much you take out at any one time, but also how stock markets perform. So for instance, if you have a bad year where the stock market falls - it’s not unusual for the stock market to fall, 10%, 12%, 15% in some of its leaner years - and suddenly you find yourself having to draw money that’s reduced in value, that hurts your fund even more.

So you have to be in a really comfortable position, I think, to sort of rely on that drawdown strategy.

But I think actually more and more increasingly, the most relevant way for people to access their pension is to do it through a blend of all of these options.

PHILIPPA: Anything to add, Faith?

FAITH: There’s one other option, which is, if you’re in a position where you don’t have to take the 25% tax free lump sum at the beginning, you could instead choose to take payments, take lump sums as and when you need them, where 25% of that amount is tax free. And that sometimes could be useful if somebody’s got the State Pension, maybe they have pensions coming in from other directions, and they’re trying to bring their taxable income down.

MARK: If listeners are thinking, oh gosh, all this sounds incredibly complicated, then believe me, it is. Don’t rush into it and think very carefully before you do it.

PHILIPPA: But the flip side of that is that, you know, the nice thing is, there’s a lot more flexibility in the system now, isn’t there? Maybe not as much as you’d like, Mark, but you know it’s coming. It’s not like the old days where you start work, you get your pension. That’s it. I mean there’s a more flexible way of managing the money you’ve saved isn’t there? Would it be fair to say that, in your retirement?

FAITH: Absolutely. It’s far more flexible and I think it means that there’s much more flexibility in the fact that you don’t necessarily have to stop work on a set date. Because if you wanted to, for example, drop your hours and go part-time after the age of 55, then you could top up your income with either part of your tax free lump sum or using the payments that have part of them as tax free, rather than just buying an annuity which pays you a set amount every year regardless of whether you want all that money or not. You’ve got much more flexibility. And it doesn’t stop you from potentially later in life - because the older you get, the higher annuity payments you will get - if you start it later in life, you’ll get more money each year.

PHILIPPA: Basically, because they know they’re not gonna have to pay you that money for very long?

FAITH: Exactly. But it does mean that while you’re still in a situation where you’re quite comfortable taking stock market risks and you can kind of manage your money, you could drawdown. But then later in life, when you don’t want the hassle anymore, you could hand over money in exchange for a certain income.

MARK: It’s one of those frustrating areas in pensions where the savers are saying ‘What should I do?’ And the answer from the pensions industry is ‘Well, like everything in pensions, it depends.’ So it’s really important that you go and have individual tailored conversations with someone, like Pension Wise, before you do this stuff.

What will retirement look like in the future?

PHILIPPA: We’ve talked a bit about how pensions have changed and are evolving even now, and we need to wrap this up. But I’d like all your thoughts on how you’d like to see that process continue. What else would you like to see in terms of evolutions of the pension system, so that people can match their older years to the kind of flexibility we’re all looking for now? What would you like to see that isn’t there?

FAITH: I think there needs to be more support for the self-employed.

PHILIPPA: Yeah.

FAITH: I don’t know exactly how you’d do it, but I think there’s a massive chunk of the working population that aren’t being compelled to put money into pensions. What we’ve seen is that while for the working population, pension saving has increased and increased and increased after Auto Enrolment, during the same time period, the contributions to pensions by the self-employed have just fallen off a cliff.

PHILIPPA: Yeah, it’s a good point. Mark, any thoughts on what you’d like to see?

MARK: Yeah, for the Pensions Lifetime Savings Association, the question is perfect because we’ve very recently launched a publication which makes five recommendations, five pleas for the government to improve the pension system.

And the first one of those - amazingly, there are no national objectives for what the pension system is trying to achieve - so we want to see the creation of very clear objectives for what the UK pension system actually is. And we think the definitions for those should be around whether it’s adequate for people, whether it’s affordable for the government and whether it’s fair in the way that everybody’s able to get similar outcomes with the same rules that apply for them. We think the State Pension’s too low. I think by international standards and by other G7 economies, it’s lower compared to our counterparts in Europe.

We want to see reform of the State Pension so that we stick with the triple lock, but it needs to gradually increase so that we reach the level of the minimum Retirement Living Standard. We think contributions are still too low via the Automatic Enrolment system.

PHILIPPA: That should be more?

MARK: It should be more. In recent modelling we’ve done, half of people are still gonna retire with less than what we call the ‘target replacement rate‘ - which is the amount they should get.

There are also lots of under pensioned groups, so we’ve already talked about women, but the self-employed, gig economy workers, there are lots of people that are being a little bit let down by the system because they work strange hours, or they might have two jobs or three jobs or four jobs and the system doesn’t really help them.

PHILIPPA: It hasn’t caught up with work with working patterns has it?

MARK: Exactly. So we’re still living in a slightly antiquated, you know, the idea that we’re all working one job and one salary, but it’s just not the case for many, many people. And the other thing is more industry initiatives to help people better understand their pensions.

So, there are actions that pension schemes can take, that employers can take to, to improve pension contributions themselves. You don’t have to put the minimum in if you’re an employer, you might want to make your company more attractive to work for, by having a more attractive policy. And we’ve seen some creative policies around employers paying during periods of parental leave, they continue to pay the pension contributions at the normal salaried rate while that person’s away on parental leave. So there’s some creative ways that can really help people’s pension outcomes in the future. So lots for the government to do, we’ve given them a shopping list of things we’d like to see. But we think if all of these things were adopted, a median earner would see their pension income increase by about £4,000 a year or increase about 25% through the entire life of a pension saving journey. So there are some big outcomes to be achieved, if we can get there.

PHILIPPA: It’s good to know you’re all over making it happen.

MARK: Yeah, we’re banging the drums, certainly.

PHILIPPA: I think we’re going to leave it there. There’s so much more we can talk about, but I think we’ll leave it. Thank you everyone for being here today. It was a great discussion.

If you’d like to find out more about everything we have discussed, then check out the show notes where there are links to lots of useful articles. A final reminder that everything you’ve heard on this podcast should not be regarded as financial advice and whenever you invest your capital is at risk.

Join us again next month when we’ll be joined by Stand Up Comedian, Vix Leyton, and PensionBee’s CMO Jasper Martens for an episode all about translating financial jargon. Dividend yields, annuities, APR, what does it all mean? Do not miss that one. Thanks for listening.

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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