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