Pensions don’t need to be a mystery, but we know sometimes they can feel like one.
Our short videos should hopefully answer some of your questions.
Transcript for 'What is a pension?'
Alice Tapper:
And so I think let's start. I mean, I know this is super basic, but I think let's cover everything. So starting with the basics, what is a pension? Is it just a, kind of a glorified savings pot?
Helen Morrissey:
It's so interesting when you said, "Oh, let's start with the basics," because actually so many people don't really understand what a pension is. So, you know, we did some research quite recently where it showed that 20% of people didn't know what happened to their pension contributions once they left their pay pocket. And quite a few people thought that it was just saved into like a bank account.
Alice Tapper:
[Yeah.]
Helen Morrissey:
Fact is, this isn't what a pension is at all. You know, as you say, a pension is an investment. And we think of pensions as these dusty things that, you know, you think all the time, "It's many years away. Let's think about that tomorrow. And let's just forget about it now." Whereas one of my colleagues described it to me as, "It's your future financial freedom fund."
Alice Tapper:
[That’s great. I love that.]
Helen Morrissey:
And if you think about it now, we get our wages every month, and we use that to do, you know, to live, to see our friends, to go on holiday. There's gonna come a time when you're not working anymore and you're gonna want to do all of those things. And if you engage with your pension properly, it makes such a big impact to your standard of life in retirement. So, you know, people should engage with it as early as possible.
Alice Tapper:
Yeah. And it's one of those things, isn't it? It's always, it’s just a bit of a drag and it's a bit painful to kind of think about your future self. And also you don't really want to think about yourself at the age of, you know, 60, 70, or whatever, but yeah, it's super important. And I guess, I think the one thing that I can say and I think a lot of people think, is that doesn't the government kind of take care of this? You know, we’ve got a state pension, if we've been paying my national insurance and so on, why can't we rely on a state pension?
Helen Morrissey:
Okay. So basically the state pension is a brilliant foundation for your retirement planning. So I think as it currently stands, if you've got full state pension, it would probably be about 9,000 pounds a year. Now, if you think about your lifestyle today, how far would that 9,000 pounds stretch? And the idea is that it will pay some of your bills, or, you know, you wouldn't have anything really left over to live the life that you want to lead. So, you know, while it's an amazing building block on which to build your retirement, you need to be looking to supplement it with workplace pensions, personal pensions, whatever that might be.
Transcript for 'Am I paying enough into my pension?'
Alice Tapper:
And with, kind of slightly different note, but with contributions, I think a big question that we had was around, how do you actually make the most of your pension and specifically, how do you know whether you're contributing enough? Because I think that's kind of a really tricky one. And [whether] as you get older, should you be paying in more? What would you suggest?
Helen Morrissey:
The key thing is just try to put away as much as you can. Saying to somebody in their early 20s, 14% might not be viable, but get into that savings habit early. And then as time goes on, if you're in a position to put in more, do so. I mean, what I would say is not to really stress and worry about it. Just put away what you can.