The following is a transcript of a bonus episode of The Pension Confident Podcast - Personal finance tips for parents part one. You can listen to this bonus episode or scroll on to read the conversation.
PHILIPPA: Welcome back to The Pension Confident Podcast. This special bonus episode is all about how to plan for a happy retirement. Last year, the team at PensionBee and a panel of expert guests toured the country answering your pension questions - and today, we’re sharing some of the best bits. Here’s Founder of Much More With Less; Faith Archer with fellow Founders Peter Komolafe from Conversation of Money; Kia Commodore from Pennies to Pounds; Rotimi Merriman-Johnson aka Mr MoneyJar and PensionBee’s own CMO; Jasper Martens at the PensionBee Roadshow in Manchester. The conversation was packed full of pension knowhow, helpful insights and doable tips.
The usual disclaimer before we start please remember anything discussed on this podcast shouldn’t be regarded as financial advice or legal advice. And when investing your capital is at risk.
So first up, let’s hear from Rotimi talking about how to start visualising your retirement savings.
ROTIMI: You can use pension calculators, which take your current amount of savings, the amount of money that you’re putting in every month, and your projected retirement date. You can use those calculators online to basically estimate, based on things like annuity rate and so on, how much income that you’d make. PensionBee has its own Pension Calculator, If you’d like to use that one. As Pete said, you can use it now to start planning for where you’d like to be in a few decades time.
PHILIPPA: Now if you find workplace pensions confusing (and trust me, you’re not alone there!) this one’s for you. Here’s Rotimi explaining Auto-Enrolment and the benefits of paying into your company pension scheme.
ROTIMI: The benefit of signing up to a workplace pension scheme is, firstly, due to Auto-Enrolment, if you earn over £10,000 a year, if you’re 22 or older and you join an employer, they automatically have to open one up for you. The minimums are that you pay in 5% - 4% of that 5% is your contribution, 1% is tax relief, if you’re a basic great taxpayer. And then your employer has to pay in 3% as well. But that’s just the minimum. There are many employers which, if you increase your contributions, will match your contributions upwards. Quick tip, if you do an internet search for ‘Pension Quality Mark‘, that actually lists the employers with the most generous DC - defined contribution pension schemes as well. A workplace pension is this vehicle that you’re saving into. Yes, you can’t access the money, but over the course of your career, you’re saving into it, you’re getting the tax relief, your employer’s paying in. By the time you come to retire, you have the aggregate of all that money in the pension.
PHILIPPA: If you’re finding it hard to save for the future, Kia had a smart tip about using automation to help you stick to your saving goals.
KIA: On your payday, you sit down and you work out your budget or you work out what you’re spending on. But I have the set amount that I’m going to put into my savings, so for my emergency funds or anything I’m saving for, for my investments and for my pensions. By doing that, that can help you to set it up. If you know you’re going to contribute X amount, X percentage of your income, you can say, “Right, I know, I don’t know, 5% of my income I’m going to put towards my pension”. You can automate that to go out. So when you know your money is going to come in on the 28th, maybe on the 30th that goes straight out into your pension pot. That way you don’t have to think about it, you don’t have to sit down and worry about it. I like to try and bring everything to a similar date. Some people have bills coming out all throughout the month, and then you don’t know where you’re at financially. If you do it all within a couple of days of your payday, you know what money you’ve got to play with.
PHILIPPA: Here’s Rotimi again with three ways to boost your pension savings you might not have thought about before!
ROTIMI: Three ways that you can potentially increase your amount of pension savings. If you get a bonus at work, that bonus will be taxed. But if you put the bonus as a one-off payment into a pension, then the tax you’d have paid on it gets added back in the form of tax relief. So that’s one thing.
The second potentially good time to save more into a pension is when you get a pay rise. Now, the cost of living is quite high at the moment, and so if you get a pay rise, that’ll probably go on your essentials and so on. But hopefully, in more normal times, if you get a pay rise, you’re already happy with the amount that you’re spending on your lifestyle. And so you can just increase your contributions and keep your take-home pay the same.
The third way is the tax relief that we were just speaking about, you get automatically back if you’re a basic rate taxpayer. If you’re a higher or additional rate taxpayer, you’re actually entitled to more tax relief back. What you can do is you can fill in a Self-Assessment form and you can get the tax that you would’ve paid on those higher and additional portions of your salary that goes back into your pension as a government contribution as well.
PHILIPPA: Moving on, Jasper covered what to do if you’re struggling to keep up with rising costs and you’re tempted to trim your pension contributions.
JASPER: People are still contributing [to their pension], but we’ve definitely seen a decrease, and that’s not surprising. I think times have been tough for many of us. But what we haven’t seen is complete cancellations. This is something that I think is really important. Once you stop switching something off, it becomes increasingly harder to switch it back on. What we see is that a lot of our customers just dial it down until times, hopefully, get better. If you’ve increased mortgage payments because your deal comes soon and you have to renew, then a couple of hundred pounds a month extra to your mortgage. Then rather than completely switching off [your pension payments], just dial it down because it’s easier to dial it back up.
PHILIPPA: Is it ever too late to start learning about pensions and investing? Of course not - here’s Rotimi and Peter…
ROTIMI: I think we’re talking a lot about numbers and stuff here, and we should do that, but also on the emotional side. Just be kind to yourself as well. It’s really great that PensionBee has put on this event for us to all come here and learn, but most of us weren’t taught this at school. We may not have had the opportunity to learn this at home. If the reality doesn’t match up to your expectations, it’s like, that’s fine, but then you can take action going forward. It’s nothing to be guilty about.
PETER: But, I literally, I first learned about investments and pensions when I was 32 years old. The only reason why I understood, “now, hang on a second, that’s a pension” was because I saw my dad at age 59 panic that he didn’t have a pension. At the time, I was about 16, 17 years old. So 16 years later, I’m working in Canary Wharf, and then something called a pension comes along. The only connection, the thing that I remembered the most was my dad, at 32 years old. We don’t get taught any of this in school. A lot of us aren’t privy to any of these conversations earlier in life. So again, be really, really kind to yourself. Don’t be too freaked out. Most important thing I’ve already mentioned is action, contributions, doing something about it now whilst there’s still time.
PHILIPPA: More from Peter - this time on why it’s so important to know exactly where your pension is invested.
PETER: If you’re in an Auto-Enrolment workplace pension scheme and you’ve not selected how your money is invested, the chances are you’re 99% going to be in a default pension allocation. What that basically means is you get half of it in equities, which is where you really get growth, half will be in bonds. When Rotimi mentioned that if you’re early in the cycle, your 20s or maybe your 30s, you want to be in that equity part, you really need to ask the question from your providers at work, because if you don’t select anything but the default, you’re going to stay there. That doesn’t necessarily mean that your money’s going to be working as hard as it should be for you in the run up to your retirement. If you take away one thing, definitely go and find that out in the morning. How’s your workplace pension invested? Are you in the default fund? And ask them what other options you have.
PHILIPPA: Have you heard of Pension Wise? It’s a brilliant resource for people aged over 50 who’re starting to think about retirement options. Here’s Faith.
FAITH: I should say, as the oldest person on the panel, I’ve done a Pension Wise appointment, and I genuinely would recommend it. I did find it helpful. It does set out your options. Also, some really good tips about avoiding pension scams.
PHILIPPA: If you aren’t sure what happens with your pension money when you reach retirement, here’s Faith again explaining one of the options - drawdown.
FAITH: If you do opt for drawdown and the balance of your pension stays invested, it’s then at the mercy of the stock market. You do it in the hope of higher returns, but you have to be realistic about the fact that the stock market goes up and down. Over the long term, the trend is upwards, but it varies a lot. So one very practical tip as you’re going into retirement is to make sure you’ve got a cash buffer, a really decent chunk in savings, even one to two years income, so that if the world goes into a recession, the value of your pension pot falls, that’s actually a really bad time to be making major withdrawals from investments. If you’ve got the cash, if you can rely on that, wait for your pension pot to come back up again.
PHILIPPA: Here’s something you might not know - your pension isn’t technically part of your legal estate. So, if you want to leave it to a loved one, you need to take steps to make that happen. Here’s Rotimi with how to do it.
ROTIMI: Pensions don’t actually form part of your estate for Inheritance Tax (IHT) purposes. If you want to pass your pension on to whatever beneficiary, you need to fill out which beneficiary you’d like it to go to with the pension platform. You have stories about people that are married, they get divorced, the ex is still their beneficiary, and the pension goes to them so that’s something to check annually, or whenever you have a major life milestone. Where’s this money going to go? Because it’s not part of your estate.
PHILIPPA: And that’s it for this bonus episode. Watch all the best bits from the PensionBee roadshows over on YouTube. If you enjoyed this episode, don’t forget to give us a rate and review, we always love to hear what you think. See you next time.
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.
