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Hello and welcome to our show today on How Is My Pension Invested? Now, this is gonna be an exciting one. Really, really looking forward to this, to talk about this subject.

I'm joined by Paul from Nest. How are you?

I'm great. Great to be here.

Great to be here too. Ryan, where are you from?

I should have let you said your name, but anyway, Ryan, where are you from? Uh,

I'm from Royal London. Royal London. Royal London. And we've got the logos there, so you may recognise, um, the companies. So before we get into this, I wanted to say a big shout out to our partner this year.

Pay Your Pension some attention. It kicks off next week, a big, big campaign for around three months. Um, and that is for everybody to get involved in, and hopefully you'll find out more about your pension and you'll pay more attention to it. So look out for that coming soon.

So let's get to it. Well, my name's Johnny, and I've introduced myself.

My name's Johnny. I'm from Pension Geeks, the Pension Awareness Campaign.

This week we've got 15 shows coming to you. We're celebrating 10 years, 10 years of helping people with pension awareness. Pretty good.

That's why we've got the nice balloons. Very good. Um, but yeah, let's get straight into it. Let's get straight into it. So today, how is my pension invested? Looking forward to it. Okay.

Should we get started? James, do you wanna put the first graphic up? Paul, are you taking us away? Yeah,

So I, I'm gonna start off talking a little bit about, um, investment in, in general terms, and then we're, we're gonna hand over and go into a bit more detail. Okay. So the, the first thing to say is, you know, um, I'm, I'm from Nest.

We've got millions and millions of members, 12 million members, all of this money's coming in, and we've got choices about where that money goes. Okay. And traditionally, when people are saving for things, uh, they'd stick, they're stick it in the bank, or they might keep it in a jar. Um, um, what, what we want to talk about today is that's probably not great, uh, in terms of long-term saving.

Not shoving your money under the mattress. Not under the mattress, and the amount of money that people can build up over a savings career, your mattress is gonna be pretty, pretty bumpy. Okay?

So what we wanna do is put people's money to work so we can grow it much, much faster than you'd get in a savings account.

So we want to kind of stick it in companies, we wanna stick it in, um, buildings and, um, all sorts of kind of different projects, all with the aim of growing that money as fast as possible so people can get much higher incomes in retirement than if you just stuck it in a bank.

Nothing wrong with banks. Yep. For the short term, if you wanna access your money and you want it to be safe in the short term, great things to put your money in. But for long term savings, for, for pensions, investing’s the way forward, investments the way forward. Mm-hmm. Ryan, over to you.

So tell us where you are. You are, you are from then.

I'm, I'm from Royal London. Yeah. So I'm a senior investment development manager. Manager, yeah. At, at Royal London. Uh, probably the most meaningless title in the whole industry. You said that. I think it's a cool title. Well, I think it's a cool title. It can do. I mean, it's a title. It's, it's, it's a cool role.

So my role basically involves speaking to lots of different people across the industry. Yeah. So I get to speak to, uh, individuals like yourself, which is great. Yeah. Uh, financial advisers, uh, members, regulators. So that's all really, really good stuff. Yeah.

 

And I also get to have an input into the design of our pension investments as well. So very, very varied. And for me, I want a person like you and Paul doing that if you're actually speaking to people and know what people want and kind of got you ear to the ground room.

Absolutely. Absolutely. Very good.

Really good. Okay. Um, James, let's go to the next graphic.

The next slide. Okay.

We saw this slide before we came on air, and it scared me. It scared me. So, Ryan, take us away. What is this slide all about?

Okay, so this is, this is the investment patchwork quilt.

So everyone's got a patchwork quilt at home, and it, I can see where you got the name from. Uh, Is indeed. Says it. It doesn't, yeah.

And so investment patchwork quilt. So very, very basic.

What this is showing you is the last seven calendar years. Okay. Okay.

Last seven calendar years.

And what we're doing is we're ranking different investment types in order of performance. So the percentage number is the percentage return for each number.

Yes. Okay. Now each colour resembles a specific investment.

So these are all the different types of investments mm-hmm.

That you can invest in. So to give you a few examples, the orange box that's commodities, uh, the purple box, multi-asset.

So that is a blend of all of these different investments and, you know, if you are invested in the default investment solution. Yeah.

I, I'm, I'm, yeah. Exactly. Interested in that.

So that is representative of the journey you'll have had over the last seven calendar years. The, the, the purple box there. Now, whenever I talk through this quilt to people, there's, I always say there's two points that you can immediately draw just by glancing very, very quickly without reading the numbers.

The first one is that it looks truly horrific. Yeah. Uh, you know, it looks like one of my kids has swallowed some crayons and vomited everywhere.

Yeah. Um, but secondly, it really hammer on this point that it is very, very hard to pick a winner when it comes to investments, because you look at some of those investments and they're up and down like a, like a violent yo-yo all over the place. I can see that. I can see one, what was at the bottom is nearly at the top.

Exactly. Exactly. So, you know, you look at the purple, you look at multi-asset that is representative of the default fund's performance.

And I think the only thing you can see with certainty of looking at that is the consistency of that, you know, in terms of its ranking relative to other types of investments. Yeah. And, and that's not by any coincidence, because default funds and their very nature, they're very deliberate in their design. Okay. And, and I think one of the biggest tips that I would give to everyone watching today, you know, myself and Paul, we work in investments, we're consumed by noise all the time in investments. Mm-hmm.

My biggest tip would be ignore that short term noise. Yeah.

If you are invested in the default, trust the process and, you know, stay diversified, not having your eggs all in one basket. We've heard that phrase before. I've heard that one.

Absolutely. Absolutely. And that should deliver good outcomes. So we're seeing here, this, this purple solid, dark purple line. Um, well that is pretty much a line, isn't it? It's not powerful line yet. Is that, is that representing then the, the default, um, investments?

Absolutely. So as I said, you know, the, the, the multi-asset that is, that is a blend of all of those different types of investments. So obviously, you know, that's great people watching this, what may have come out the default.

They may have be self-selecting investments, which is fine if you've got the risk appetite to do that.

But for the majority of individuals, this will ensure more consistency over the long term.

Great. And maybe, uh, later on, um, we have got a chat function next to, uh, this video now where you can put, um, notes in the chat. But if you've got any questions, um, about investments pinging them, I said this since that pinging them over because Paul and Ryan will help in about 10, 15 minutes answer them. But that's really cool. That's really cool.

Um, she'll get to the next slide. Yes, indeed. Okay, James, next slide. Right.

I like this slide before you brought this slide up earlier and we're having to dress your rehearsal two favourite brands. I love Greg's and I love Disney.

Tell me more. Tell me more what I'm intrigued.

Okay. So I guess just before going into this, it's, it's worth pointing out, you know, Paul was talking about earlier about pensions not being, um, invested in a, a bank account. Yeah.

We actually did some research recently at Royal London. We, we spoke to 6,000 UK adults, and we found that one in 10 actually thought their pension was invested in a, in a bank account. Yeah.

That actually increases to 25% when you look specifically at that 18 to 24 age cohort. So I think all of us in the industry have, have, have got quite a job to do, I think, in terms of engaging the public.

I agree and educating agree.

And I think that's why these sessions this week I think are really good at doing that. Yeah, I agree. Uh, but in terms of this, obviously we, we've, we've just looked at that investment quilt, we've looked at some of the investments mm-hmm.

The different types of investments that, that go into that default and how they perform individually. Yeah. Um, you'll have seen some, some, um, tiles on that quilt specifically in relation to equities or stocks. I did,as we call 'em. I did. Absolutely. So you've got UK stocks, you've got overseas stocks, you've got emerging market stocks. Yeah.

It all sounds very, very scary. It does. I'm not gonna lie, it does sound scary, but

When you break it down, it's not because basically what equities or stocks are, is we're basically using pension money to purchase shares in companies on the stock market. And these are companies that everyone will recognize, you know, spanning a variety of different sectors. Okay.

So, so basically my pension, I love Disney, so I own a bit of Disney. Then with, with my pension, obviously

It depends where your pension is and obviously the, the companies will vary, but yeah. Very broad spread of companies.

It could do. It could, it could do. It could do.

Absolutely. And I was saying earlier, I love Greggs. So basically I'm doing this all a favour when I'm eating my sausage rolls, because yeah. Making everyone's family stronger. So with, with equities, you know, we generally categorise these as growth investments. So over the long term, these should ensure, uh, pretty good growth. Yeah.

But obviously with that it becomes a higher level of risk, so okay. What it generally means is the younger you are, so the further you away from retirement. Yeah.

The more exposure you'll have to these investments. Ah, okay. And, and we talked a little bit before about diversification yeah.

And not putting all your eggs in, in one basket. Yeah. I think with a lot of the default funds, nest, for example, when we give our members exposure to, uh, shares and companies, there's over 2,000 companies around the globe that, that we're investing in.

Yeah. So you, you, you're not necessarily gonna know which company's gonna be most successful for the next five, 10 years. Of course. Yeah.

But if you spread it out and invest in all sorts of different sectors of the economy and in different companies, even when some companies are doing kinda less well, you'll be invested in other companies that are doing really, really well.

So that idea of kind of default funds with well diversified, um, whether it's asset class or whether it's individually within asset classes, is really, really important to try and kind of deal with some of the ups and downs that you'll see over a long savings career. Mm-hmm.

Wow. Wow. Really interesting. Really interesting and exciting.

That to me makes pensions exciting, learning about that. Oh, absolutely. Yeah.

Rarely does. Okay, James, let's go to the next slide.

So we, we, we talked a little bit about companies. Yeah. And then increasingly what we are doing at Nest, um, because we we're, we're pretty big. Now we've got over 12 million members in the, in the UK. Wow. We're investing over £30 billion, and that's increasing by billions and billions.

30 billion, yeah.

Every year. Um, and that's grown massively since we started in, in 2010.

So we've started putting more and more money into kinda big projects like this kinda wind farm. So this wind farm, it's something that our members owe, and it's, it's off the coast of Lincoln Lincolnshire. It's not that far from, from here.

Well, I was gonna say, where the studio's based in Grimsby today. So this, this touches my heart when you were telling me, you know, not only are we invested in pensions, our pensions is like Disney and Greggs, but also locally to me. Yeah.

And, and, and this is great, this is a really good example of, of the sort of, um, some of the innovative things you can do once you start getting scale and getting lots of people bringing their money, money together. Yeah. So, so this, this wind farm is gonna generate loads of money for, for people's retirement.

Mm-hmm. But it's also supporting that essential transition from a world in which we, we generate electricity. Yeah.

From coal and gas to one where you're doing it from, um, renewables and, and, and clean, clean tech.

So we are getting our members kind of exposure to yeah. You know, the future in terms of how energy is kind of made. It's creating jobs locally.

Oh. A couple of my mates are working, doing, I dunno exactly what, but they've got jobs because of this.

It's huge. We, we, we took some of our members who, who are based in Grimsby, we took them out to, to see this wind farm so they can see their kind of like, their money in action's. Cool, cool. So, you know, not only are they generating, you know, cleaner electricity, it's also generating, um, income for them in retirement. Um, it's generating kind of, uh, more investment into local communities.

These are all kind of win-win for our membership.

That for me, when I'm thinking I'm putting money in my pension each month, it makes it even more exciting. Not only am I helping, you know, the area that I live in, grow and flourish, but also investing in technology and things like this that's gonna make the world hopefully a better place. And bring down energy bills as well. Yeah. All, all, all good stuff.

Even bringing that, yeah. You mentioned the thing, bringing bills down is good too. Yeah. Bring real down bills down is good too. Okay. Should we go to the next slide?

Yes, let's do that. Let's do that. Cool. Oh, very good. This is a very colourful slide,

So nice bit of a segue there. Um, what I want to talk about now is, is getting into the world of responsible investing. And, and I think the, the first point to make is that there are loads of different terms that have been branded around at the moment. And, you know, even the experts can't agree on what term to use in a lot of, a lot of instances. So what hope have we got? But that, that is nice,

Wouldn't it? Wouldn't the pensions industry?

It wouldn't if you couldn't make it complicated, wouldn't it? It wouldn't, it wouldn't. So, you know, people watching this video today, you know, you might have heard of ethical, you might have heard of ESG, you might have heard of sustainable and might heard of impact.

There's so many different terms out there. Yeah. Uh, but what I wanted to do is just, is just focus on the two terms you can see there. Um, ethical and ESG has actually become a bit of a catch for all term. Okay.

So we'll explore that in a moment. But if we think about ethical first, um, ethical funds or ethical investments, these are generally focused on excluding or screening out specific companies or specific sectors. So for example, uh, it might be funds that don't have any investment in companies involved int tobacco production, um, alcohol production, animal testing, etc, etc. Yeah. Um, ESG on the other hand, um, I mentioned that's become a bit of a catch for all term. Uh, it stands for environmental, social and governance. Okay. Now, in an investment perspective. So when we talk about ESG investing, what we're effectively doing is we're taking different environmental, social and governance considerations into account when we're making investment decisions. Oh, okay. So if you think about environmental, you know, that would be looking perhaps at a company's policies in relation to how it's tackling climate change mm-hmm. Waste management policies. Mm-hmm.

From a social perspective, it would be looking at the company's record on, on gender diversity Yeah. Labour rights. Yeah. And from a governance perspective, it's looking at things like boardroom diversity or how much executives are being paid, those type of things.

So it's been really proactive looking at those considerations and actually taking them into account when we make the investment decisions.

I like it. So going from, I was originally talking about our pensions being invested in like Disney and Greggs, then we're seeing, you know, we're actually doing good with it by off the coast of Grimsby, but then even have the power that we can change the way these companies are doing business and what they're doing. And we want to change.

If we're investing in them, we don't agree with them. We're moving our, our pension as where it's very powerful for.

Absolutely. Absolutely. And I think, you know, the next slide is, is on responsible investing. And you, you know, that again, has become a bit of a catch for all term, but when we talk about responsible investing, what we're generally meaning is taking ESG considerations into account within those investment decisions, as we've talked about. But also building on that point that Paul discussed earlier, in terms of, um, taking out active ownership seriously. Yeah. So things like, you know, the companies that we are invest in making sure that we vote at the AGM, we're changing decision changing decisions. Exactly. Making sure that we speak to the companies, engage with the companies, and try and influence positive change. That is a big, big thing.

And we can do this just by pensions. It's crazy. Absolutely. It's crazy. Okay.

Paul, we've got our last slide. Yeah. Take us away. So I was just gonna talk a little bit about what, what responsible investment means. Okay. Um, for Nest. And, and I think just building on those points, um, this is not about, you know, being moral or being ethical. Yeah.

This is all about better investment decisions to make more money for our members over the longer term. Of course. And I think the, the kind of key thing is our investment horizon.

So when we're thinking about long term, you know,

the markets often think one or two years in advance. Yeah. Our youngest members 16, you know, so we are thinking about an investment journey over the next 50 years.

So we can take these long-term views and think hard about how companies are gonna be successful over the long.

We're not telling companies how they should be running their business, but we are wanting to promote best practice. We want to talk about things like, um, fair pay or people being paid well, that's beneficial for our members.

It's beneficial for, for communities as well. But most importantly, this is about, um, a long-term, uh, sustainable in investment returns.

Wow. And one last point I'd make on this is, uh, we, we do have an ethical fund choice away from our default strategy.

And we talked earlier that defaults are horrible word.

It sounds really negative. Yeah. To us, the default fund is, you know,

it's a place where we're focusing all of our attention at Nest.

It's where most of our members are.

It's where we've got the most kind of economies of scale, and we can do the best job. Responsible investment is central to, to what we're trying to do, really for, for our members.

This is not something niche. Um, and increasingly we want to engage with our membership and hear about what they care about. Um, because that's a really, really powerful, when we go and talk to the CEOs or the chairs of these big companies we were talking about before, being able to say, well, you know, 12 million members, this is what they think about you. You, you should, you should take this seriously. These are your owners. Yeah. Um, it's not, you know, some abstract concept of who's owning the, it's, you know, UK workers are owning these companies.

Those companies should be operating in their interest, not, not somebody else's. I think that's the biggest thing for me.

The fact that responsible investment is standard within default solutions.

So for members, it's not a case that they're having to make active decisions and, you know, try and root out specific fund choices. And it's been done in the way, which isn't detrimental to financial return, risk, or cost.

So that is a huge plus.

So before this show started today, I, like I said, I'm in a default fund.

I thought I wouldn't be getting all 'em great things that you've spoke about today, being in a default fund. Well, you learn a lot, don't you? Absolute.

I know.

It's great. We need, we need better words though. Default is a, I know.

Let's change default. If we can do anything today, let's change the word from the default fund. Yeah. Okay. Well, we're gonna get your questions, um, to both Paul and Ryan in a moment.

But before we do, I wanted to show you, um, our Pension Awareness Day website. It's called Pension Awareness Day.

We started 10 years ago just doing this for a day, and it got so big of the campaign. We've been doing it, we do it for a week now.

Um, and we spoke to millions of people in that time, which is really exciting.

But for the campaign this week, we have 15 TV shows going on. Um, I wanted to show the webpage where you can book on two other shows.

So if you just slowly go, um, down the page, James, I can show you on the, the first page of the website. We've got a timetable. So yes, we've done two of the shows so far, but we've got 13 of the shows, uh, in the week that you can book onto, which are really, really good.

One of my personal favourites is we've got Steve Web guys come to the studio, um, to talk about the new State Pension, which is a very complex subject.

So we're happy you can click on that book on it, which is great. Um, but James, I wanted to show everybody, so we've had a lot of questions coming in.

If I can't see the show, well, if you haven't seen the show, you won't know about this.

But if you can't see your show or you've booked on other, any other shows, we're recording these TV shows. So you're allowed to go back and watch them at a later date, which is great.

They're gonna be on for the next 18 months or longer.

So you're allowed to keep watching there. Um, we've also got a, yes, it's in the Catchup video section on the site. Thank you, James, for showing that. You'll see the videos there this evening, around five o'clock.

You'll see both, both of you. Oh, really? For this video on there.

So you'll be watching that, I'm sure. And then we've got to, to compliment what, um, Paul and Ryan have said, we've got a useful, sort, uh, useful resource section with some great links in there to the government websites to moneyhelper, pension wise, um, and lots of other, um, useful links that will help through the shows that we have this week.

So make sure you go check that out.

Let's go to the q and as now I'm gonna get the iPad out.

You can get the iPad out, and let's see how this goes. Because Ryan, you're taking the wheel. I'm indeed.

I'm driving.

So we will see. We will see. So I'm gonna refresh the,

the iPad and we're gonna wait. Have we got any questions coming in, guys? Yeah, we have, we've got loads going in. Okay. Well, um, I'm not seeing them on the iPad. Oh, they're coming in. They're coming in. I knew we could. So, um, I'm gonna pass this over to, to Ryan. Ryan, fire away. What questions coming in first?

Okay, so first question coming in from Graham. Uh, so do Nest and Royal London offer the ability to invest in specific stocks? Also, are the funds actively managed by a fund manager? So I'll, I'll answer from a Royal London perspective, and then I'll, I'll hand over to Paul. So, uh, so Graham, um, what, what we're, what we're basically doing is we, we have specific funds within the default.

So the default investment solution is a, basically a basket of different funds.

Okay. So when we're going back to that investment quilt earlier, yeah.

You see the different investments. Um, each one of those was, was, was basically a specific fund. So you've got a head manager for each of those funds within that fund. Um, there will be a variety of different stocks.

So the fund manager is basically making the decision what to in, invest in.

Okay. And it's all basically compiled up.

Very good. Very good.

I'll, I'll just, yeah, quickly from, from their perspective, um, individuals can't invest in specific stocks, but what we do have in our default strategy, we've got these 50 target date funds. Okay. So there's one for every year that, that people, um, people could retire in. Um, and we invest in all sorts of different things in each of those target date funds. Okay. Plus, plus the fund choices.

And then we work with lots and lots of fund managers.

Some of the biggest ones around the world. Some of those are actively, uh, managing funds and some are tracking what are called indexes, where, you know, you just, you're just investing in the entire entire market. So, so it's a mixture depending on, um, what's best for particular asset classes, how we can get best value for, for our members. Brilliant.

Brilliant. Um, I, I'm sure this technology's gonna work.

And there's another question, I'm sure Ryan.

Oh, the flying. They're flying, they're flying through Johnny. Brilliant.

They flying through. Oh God. I had complete faith it was gonna work.

So, great question from Olivia next.

So when should you start investing in your pension? I'm 23. Not myself.

That's Olivia speaking. Okay. You're 24. So Olivia's 23.

And she wants to know when the best time to be investing in the pension would be.

Okay. Yeah. So I, I, I think we, I think we touched on, on this earlier definitely from, from, from my perspective, the, the earlier the better. Absolutely. I've heard that before. The earlier. Okay. Okay. Yeah. So why then what basically, in terms of the, the, the money that you put in the compound interest that you would get over, over the, over the long term? Yeah. Um, I mean, first of all, starting your pension journey at any age is a good thing. Yeah. Okay. You know, there might be some people watching who are in their forties and never started, so it's never too late to start. But what I would say is, the earlier you can start that

Is 23 Good age then. Good age. Yeah. And the, the other thing to add as well as part of the automatic enrolment reforms, uh, it's from age 22. Um mm-hmm. If, if you, if you stay within the pension scheme, you are, you are getting your money, um, you're getting loads of money from your employer and from, from the government through tax relief. Yep. So every year you miss out on that.

That's, you know, that's money you are missing out on, which is some people might think of it as deferred, deferred wages and stuff.

Yeah. Or to a certain extent it's free money. Yeah.

Brilliant.

And if people, I was gonna just say, if people wanted to know a bit more about how a pension works, the TV show we had this morning, uh, with Kate Smith, it talks about what is a pension and how does it work?

So you love to that again later in the catch up area. Um, yeah. Smash Smash, yep. They're still coming through. So, question here from James. Uh, Jeremy Hunt has proposed reforms that have the government taking 5% from default fund investments to invest in startup high risk companies. Okay. Um, is this happening?

So I think this is probably in relation to the mansion house compact. Yeah.

That, that, that was, that was recently announced. Yeah. Um, so this is all to, you know, I improve basically liquidity and get more money flowing into, you know, the unlisted type of types of companies. Yeah.

 

So there's different ways you, you can do that. So a lot of, um, companies signing up to that particular compact, some companies in terms of their default solutions are already doing that in other forms. Oh, right. But it's part of a general drive to really, you know, IM improve investment Yeah. Um, across the landscape in different things. Yeah.

So there's a lot going on. Yeah. I think it's, um, so, so we are investing a lot in private markets. So things like private equity, um, big equity infrastructure projects like the Wind Farm Show showed.

And the reason for that is it's, it's another source of return and we would expect to make more money for our members on, on that basis. Okay. Um, and, and government is trying to take away barriers for, for, for people to, to do that. So it's not, it's not quite right that the government's making pension schemes, uh, do something.

It's trying to encourage pension schemes to think about stuff beyond traditional investments like equities and, and bonds, which, you know, just is fairly sensible. I, I think from our perspective. Yeah.

Yeah. I mean, and that's the thing within default fund solutions, the, the good thing about 'em is that they are so diversified now in terms of the range of investments. You know, we've discussed quite a few of them today. Um, also commercial property. That's a, that's a great diversified. And again, you know, like Paul was talking about the, the, the wind forms earlier, it's another tangible type of investment. Yeah, yeah. You know, you see a build, you walk past a building Yeah. You, you know, you, you can relate to it.

I like that. Yeah. You know, again, in that basket with other types of investments. Yeah. It's great benefits.

No, great. Okay. Um, and how, I'm just looking for time, so Yeah.

We're still good for time. Okay. So there's a specific question that, that I'll take here because it's in relation to a Royal London strategy. Okay.

So I have a balanced lifestyle strategy with Royal London.

So that is the default. So we talk about default solutions. Yep. That is, that is the one, uh, Roland the state, that they regularly review this strategy to make sure it's performing as it should. How often do you review this? That's a good, and that is from Angela.

That's a very good question. Um, very well suited to answer that because I work in the team that is responsible for. Okay. Reviewing that. Okay.

Better be a good answer.

Yeah. So the, the, the answer is that it's ongoing. Okay. It's, we we're doing that all the time. There's a Oh, so it's not just a set time of the year. You do okay. No, no. So it's not like you get committed together once a year and you, you're put some sandwiches for them and yeah. You know, tick out is doing,

When we're talking pensions, and I am visualising what you just said, that would be the case, but it's not. Okay.

There, there is, you know, I you like any of this, you do have to have a formal governance structure in place. Yeah.

And there is some formal governance around that. Yeah.

In terms of quarterly meetings, but it's an ongoing process. Okay.

Now obviously pensions, as we've already talked about, are a long term investment. Yeah, absolutely. So, but we do have to monitor, we're monitoring short-term performance, we're monitoring long-term performance. Yeah. Uh, we're looking at customer outcomes.

So there's a lot that's going on in terms of that review process.

Brilliant. Brilliant. Well, great. It was Angela, was it? Who said that?

It was, it was. Good question.

Good question. Perfect. Okay. So another one here from, uh, Katie.

So on the topic of diversification yeah.

So would splitting my pension into investments that represent a global E T F tracker, e t f exchange traded fund. Okay. Um, so would that be enough, or do we need to diversify across asset classes too?

Um, and then in brackets asking as someone with 30 plus years till retirement, so that's from Katie. Katie

Is a proper pension geek, I would say here. She, she knows the stuff.

That's great.

Um, do you wanna take that or do you want me, shall I, um, I mean, I, I think the first thing is, you know, you we'd need to understand more details about kts kind risk appetite. Okay.

And, and things like that. Um, I think the things we were saying earlier on is a single asset class carries quite a lot of risk. Mm-hmm. Okay. Um, I mean, putting things into, on the whole equities over the last 150 years have massively outperformed things like bonds and, and cash. Yeah. But there'll be long, long periods where they, they'll underperform all, all sorts of things. Ah, okay. So when we started investing our members' money in 2010, there's this huge kind of equity rally where equities performed extremely well. Bonds performed pretty well as well.

But then the last couple of years it's been really, really poor. And before 2010, you had the global financial. Mm-hmm. So there, there is a lot of danger in sticking your eggs in, in one basket. And that term, again, don't sticking all in one basket, spread it about, I mean, even in two baskets. Because you look at, you look at last year, now, last year was a very strange, there was a lot of random stuff that affected markets. Yeah.

But it was a year that both equities and bonds fell.

And now, and that's what we saw in the news.

Yeah, absolutely. Absolutely. So that's very, that's pretty much due to, you know, inflation massively ramping up. And then there's, you know, the, the initial Russian invasion of Ukraine and all the market events and the political turmoil we had in the UK, the mini budget.

So a lot of particular scenarios that that contributed to that.

But I think it really does demonstrate why you need to have broad diversification. So not just your equities and bonds, but the other stuff that we've talked about earlier. You know, your commercial property and your real assets. Yeah, yeah, yeah. Yeah. Makes a lot of sense. And it was last, was it like a perfect storm? Was it once in the r a we saw it, was it 2010 we saw something like this? Did it all crash in 2010? Mm-hmm.

Is this, is this, were we expecting it? Or is it just a freak thing that this all happened last year, the last few years was with Covid and everything, you know, is it gonna get better or we gonna be like, it's

A, a lot of things came together at the, the same, at the same time. Okay.

The, the big challenge about kind of investment is that people don't know what's gonna happen year to year. Mm-hmm.

Which is why the whole kind of discussion about diversification, if you knew exactly what was gonna happen would be, uh, you wouldn't, you wouldn't be worrying about these things because you'll have perfectly predicted Perfect Plan.

Yeah. And then an element of diversification.

And I think it needs to be smart diversification. Yeah. Yeah.

It's not just spreading it out kind of everywhere. Yeah. Yeah.

Is recognising the inherent uncertainty about the future.

You don't know what's gonna happen Yeah. To China, US relations over the next 10 years.There all sorts of things, um, that they can play into it. But spreading your money in a sensible way, having a pension scheme, which is thinking really, really hard about how you can rebalance on, on a regular basis. Mm-hmm. Um, you don't just set it and forget about it. That that's, I think, the importance of having, um, pension funds who are really thinking hard about this. Yeah. Um, gives you a much better probability of doing much better than just sticking your money, uh, under the mattress. Mm-hmm.

No, I like it. I like it. So, um, any more questions? Yeah.

I've got a really, really good one actually from, uh, lc. Lc.

I dunno what lc stands for, but it's, it's from lc. Okay. Uh, so lc, uh,

I'm 30 and I've been saving into my pension for about 10 years. Okay.

I've always had my pension set at medium risk. Yeah.

Should I change this to high risk? And if so, for how long?

Soon as I'm still a way off retirement.

So that, that, that's a, that's a, that's a really good question.

So typically when we talk about default funds, default investment funds, uh, default funds are, are, are usually and typically set for a balanced attitude of risk for, for a balanced investor, middle, middle of the middle of the road. Um, but obviously, you know, everyone has a different attitude to risk.

Yes. I, yeah.

You know, even households.

Absolutely. Absolutely. So for some individuals, they will naturally have a, a higher attitude to risk, which will result in a more probably adventurous investment spot. I've got a high attitude to, to risk with my pension. I've, I've been Yeah.

Good, good. But equally, you know, someone might have a more cautious attitude. Attitude. My partner, she's got the off it to me, she's very cautious. Yeah, yeah, absolutely. That's good diversification in your household. Oh, well that's why we did it. Obviously. That's obviously why we did it.

So, I mean, it, it, it can, it can differ, but it's really, really important that we recognize the fact that all of us as individuals can have different attitudes to risk. So it's not to say, you know, just because you are you young, you're automatically gonna have a more adventurous attitude to risk.

You might well do. Um, what I will say is the, the younger you are, the more you can afford to take risk relative to someone being older and approaching

Their retirement. Because if the investments didn't do so well, you've got longer to recover. You can recover. Okay. You've got absolutely. And then if you're either end of the scale, if you're really risky Yeah.

Didn't do so well.

Absolutely. Yeah, it makes sense. But to, to go back to LCS point there, you know, if, if, if you really did want to check your, your attitude to risk, there are a number of tools to, to use out there. So for example, Royal London have one on our website. Okay. But you can go on there, you answer about 12 different questions. Brilliant.

And it'll actually tell you what your attitude to risk is.

And then that can perhaps be used to tailor to more of a, a suitable investment solution.

That would be good to know, because I just automatically went to, I'm a risky, I'm a, I'm a risk, I just, I automatically went that.

But probably doing them questions I might not be, I just assumed that I was. So it's more, it's a more of robust way of finding out, I guess. Yeah.

I like that. Very good. Very good. I, I like that question, Elsie. Very, very good. Um, any more? Yeah.

Okay. So we've got one here. So, does investments mean that potentially you could lose your entire pension? That is, if it's invested badly?

See, that is a, a question I've never thought of, but a blooming good one. Yep.

Okay. Do you wanna tackle before?

Um, you two are sweating a bit?

So, so, Well I think that the, the, the first thing to think about is, so, so at the moment we're living through quite a period of high inflation and cost of living crisis. If you were sticking your money in the bank, you would be losing money all the time. In, in kind of, kind of real, real terms. Um, if you are invested in really, really, really high risk things where you're putting everything into a single stock or, or a single kind of kind of asset class there, there's a possibility that company could go bust or, um, you know, if it was a single country, that country could default on it on, on its debt.

Um, so yeah, it is a possibility that you could lose, uh, a lot if not all, all of your money. Oh. So you can actually, you're not gonna say, guys, we're gonna pull the pluggage 'cause you're going to, we're gonna try and save you a little bit. It's if you've taken that decision.

Yeah.

Potentially. If, if you, if you've bought a government kind of debt, it's, Russia was a really good example. Mm-hmm. We, we stopped investing in Russia, um, because it was impossible to access any of that, any of that money. Um, so, so I, I think that just kind reinforces the point that if you stick everything in one thing, you are running a lot of risk. I mean, the return could be amazing, but are you prepared to, to take the downside, having a balanced portfolio where you invest in all sorts of different things and those, the balance of those investment change as you get older and you have different priorities, I think, um, I think we'd say that that's probably the sensible solution for most people most of the time. Yeah. Okay.

Okay. Yeah.

Okay. I've got a great line. I keep saying through these TV shows and everything that you are hearing today is guidance. It's not advice. So do not do anything that we say here, but the, the, the guidance that both of you're giving is brilliant.

Brilliant. Absolutely. Absolutely.

Great. Um, I'm just looking at the time. We've got 10 minutes left.

We've got 10 minutes. Okay.

So a questionnaire from kc, pretty generic one.

So regarding ESG and sustainable investments, et cetera, um, is there any way to know, uh, where and how my money is being invested?

So what I would say to that is obviously depends on what pension you're using, what, what default fund solution outside the default funds. Uh, but my, my advice there would be to look on the what company's website. Okay.

Look at their fact sheets. There's, there's plenty of stuff out there, uh, that's more engaging than your traditional old school fact sheet that wasn't very engaging. Okay.

But there's a lot of new stuff coming out in looking to really improve the transparency of where you're invested.

And there's been some great campaigns over the year as well that are trying to increase that transparency really. So, you know, people can actually look at not just what is the name of the default fund or name of the funds you're invested in, but lifting the bonnet up and actually looking at what type of companies and sectors in that. It's really cool. Long way to go, I think. But, you know, I think it's something that our industry is really trying to correct. So, so, so nest everybody in, um, in our default strategy can see all of the companies, uh, that they're invested in.

And we have like the descriptions of what that company does. Yeah.

 

What kind of sector they're in. So, so we are really, really keen that people understand. Yeah. Yeah. It's their money, you know?

Yeah. We, we are trying to do, um, people

Forget that sometimes that it, it is their money.

It is not the fund manager's money. It's not our money.

It's our member's money where we put it. You know, people, people want to know.

I mean, people, we, we, we are acting on their behalf. We should let people, we should be as transparent as possible to let people know where their money's going, and then we want hear from them. If, if people have, have concerns. It's really, for me, it's really refreshing today, hearing from both of you, coming from the pensions industry and be able to talk like this.

It kind of makes, pensions are very boring. No two ways about it.

But both of you today have made it, you know, they're very exciting. Yeah.

Really, really exciting. Yeah.

I, I, I think too, too often it's been investment and finance is something that are for other people. Yeah. And it's about, you know, people making an enormous amount of money for people who already have an enormous amount of money. Yeah, yeah, yeah. Yeah. Automatic enrolment. It's, it's a, it's been a revolution in this country in terms of, you know, over 80% of the population now has access to an occupational pension.

All of their money is going into all sorts of kind of things in this country and, and around the world. It's, it's, it's really important what happens to, to it because, 'cause it's important in a way that the economy would perhaps just happen to people in the past. Mm-hmm. Whereas now people are part of the economy.

They own the companies. Yeah. Um, it, it, I think, I think it's really powerful on, on that last bit about the, there's some stuff about kind of fossil fuels as well. Yeah.

There's lots of debate about should you be completely outta fossil fuels. Yeah.

And, um, our ethical fund, for example, there is no investment in, in fossil fuels for our default strategy. We are, um, we've tilted away from the highest emitters of, of carbon yeah.

And put more money towards, um, those companies which are kind of driving this transition to a, a sort of a net zero world, which, which needs to happen, um, for, for, for everybody.

We are not in a place where we think it makes sense to get out of every single kind of fossil fuel company.

A lot of those companies are gonna be part of that transition.

So we want to encourage them to go further and faster. Yeah.

And where those companies just aren't, you know, aren't, aren't stepping up to, to, to, to the plate. We will then exit from, from those, those companies.

So you are essentially putting pressure on them people to sort of like, we have to make more of an effort with this transition.

We're not just saying it. Yeah. We've got to do otherwise. Yeah.

Yeah. I mean, very good. You, you've, you've seen what's happened with, with the weather just here kind of, kind of recently. Yeah, yeah, yeah.

This is climate change is affecting, uh, you know, investments right now.

Yeah. How do we make sure our members, um, kinda money is, is managing that risk that, that they're facing and how do we, um, help those companies and, and kinda make more money from, from the transition to a green economy? I think it comes back to that point we were talking about earlier where responsible investing is now becoming standard. Yeah. You know, within, within, within default fund. So this isn't, you know, it isn't a case of having to self-select and go off and find your own investments that do this.

Which it was, uh, what was it a bit ago? Like that if you wanted to be a it's quite niche, I think.

Yeah. It's becoming more wide scale now. So Yeah. At, at Royal London, very, very similar to, to what, what Paul said actually as well. So we're, we're doing the tilting in terms of looking at companies in terms of carbon emissions, so tilting towards those with better credentials in that particular area, but not completely disinvesting from certain sectors because of the power of, you know, engaging with these companies and voting AGMs. It's a very powerful thing. Yeah. Yeah. And you do see, um, adverts, you would've seen like fossil fuel companies now when they put their TV ads on TV, the side of showing wind turbines that we see there, they're showing, you know, that was us then. This is us now. Yeah. We're on that. Yeah. Yeah.

That's, that's, that's a very powerful, uh, great question from Damien, which I think represents a, a particular issue at the moment or what we've had over the last year.

So Damien's question is, I am in a default low risk two years from retirement.

Mm-hmm. So two years to go till Damien's retirement age. Okay. Uh, the last two years my pot has collapsed and is now less than I put in.

Should I stay with it or move to a higher risk fund?

So I think the caveat there, obviously we can't give advice in terms of specific situations like

Yeah. We're just guidance

It. Exactly. Exactly. But I think what, what, what Damien is pulling out here is a, is a real issue that has happened particularly over the last year when I talked to the fact that it's so sad. Like it's an awful it is story. So, you know, we, we, you know, we've talked previously about pensions being long term yeah.

But for people with two years to go to their retirement, it's, it's not that that long term. Yeah. And what we've, what we've seen over the last 18 to 24 months is both equities and bonds fall at the same time, which really doesn't usually happen.

As I said, that was a very bizarre set of circumstances that, that, that, that led to that. Uh, what I will say is we, we, we are starting to see recovery in those different investments that, that have fallen over that, that the last 18 months. And again, in terms of that, that question about do we need to take more risk? Mm-hmm.

Yes. That's potential one route.

But I think individuals need to understand that, that there are different attitudes to risk out there. So for some, okay.

A high risk strategy won't be appropriate because, you know, as Paul mentioned earlier, we, we don't know what will happen next year and so forth.

Yeah. So it could be in a worse situation than

Now. Potentially now. Potentially.

Okay. Wow. Wow. Okay. Um, so we've got about three minutes left.

Should we squeeze in one last question if that's okay? Yep.

Okay. So this is, this is a good one. I think, um, quite a lot of individuals watching today might, might get a lot of benefit from, from this, but is there a website people can use to compare funds offered by pension providers? That's good, man.

So I recently changed how my pension is invested and there were similar funds, but with different fees. Yeah.

So I think what I will say on this is that there are a lot of tools and a lot of websites out there. Yeah. Um, the majority of which are aimed more at, I would say financial adviser audience. Okay.

For financial advisers to then dissect and digest all of that. Yeah. And, and, and really because it can get, it can get quite complex. Yeah. I can imagine.

When, when, when you're, when you're looking at different things, obviously when you go and provider websites, you know, you, you will get the range of different investment solutions there that you can offer. You can look at the charges, you can look at where they're invested, very, very transparent. Um, in terms of one website that has everything on it.

I'm not aware of one from, from sort of like the general public perspective in terms, in terms of looking on. But what I will say is it, it needs to happen going forward as an industry. Okay. So I think the more transparency we can show in this, well if, if people wanting it. Yeah.

Absolutely. Yeah. Yeah.

Absolutely. I mean the, the, the last bit of that question talks about fees.

Yeah. Um, and there's lots and lots of debates about kind costs of kind of pensions and costs of investing. Mm-hmm. And I think healthfully, the debate is moving much more about kind of value for money. Yeah. Yeah. We, we wanna move away from a kind of a race to the bottom to the cheapest is the best. At the same time it's very, very easy to be, be charged a lot for, um, for, for services that are, that aren't that great. Mm. Um, with the occupational pensions schemes that a lot of people will be in, um, there are caps on how much is spent, um, on, on, on the fees.

And that's a, um, 75 basis points. So it's, you know, it's pretty cheap compared to to to what it used to be. Okay.

But people like rural London and, and nest much, much, uh, kinda less than that. And we're still able to have investment strategies that are including all sorts of, you know, quite, you know, these are expensive asset classes, but through the kind of benefits of lots and lots of people coming together,

I'd say that you buy

And having a lot of, and having a lot of assets and stuff, we can drive costs and charges down across the industry.

So scale is really, really important in, in, in a lot of this.

That doesn't mean that small schemes can't, can't be successful, but it's harder to get access to some of the asset classes we've been, we've been talking about it's harder to do diversification as well. Um, so it's important to look at fees, but you need to look at lots of other things, uh, as well when, when, when making those decisions.

Brilliant. Well, I've learned so much today about how my pension is invested. I hope all of you I've learned as much as I have. I'm sure you have.

And enjoyed it. Paul, you've been fantastic. Paul from Nest,

Ryan from Royal London, you've both been brilliant. You did great with the, the question, I'm sweating there.

That's rolling. Well, it's good. It is good. And just to let you know, all the questions were sent in by Rachel and Noel in the background, so you guys had no clue. What we're gonna ask you today is all from you.

So thank you for joining us. We've got another session today at three.

If you haven't registered to it, you can go to the pension awareness day.com website where you can register for other. And that show there, thank you for joining us.

We've loved seeing you. We've seen both of you too. We'll see you soon. Bye.

Cheers.

Bye. Cheers. Thanks.

Hello and welcome to the Pension Awareness Campaign Week. I'm Johnny, and today I'm joined by two special guests, Sarah and Clare from Royal London.

How are you both doing? Good, thank you. Really good, really good.

Looking forward to this. I am too, everything that you want to know about pensions, but we're afraid to ask.

Yep. So there's no, we're just saying there's no silly questions here. Is there?

Yeah.

So we're gonna hear from you all your questions about pensions in about 20 to 25 minutes. Um, but before we do, I just wanted to say welcome to the channel and welcome to the show. Today we're gonna hear from Clare, Clare and Sarah get it right way round.

But we wanted to say a quick shout out to our partner this year. I dunno if you can see that behind me. I'll go behind me in a minute. Pension Attention campaign, it starts next week, on the 20th of September, they're going to launch a special announcement.

So you need to look out for that logo over my shoulder pension attention. Look at our look out for it next week.

But Royal London are big supporters of this too. So you'll be part of that.

We absolutely, yeah, part of that. So, um, so Johnny, is it not time for you to go? What? What do you mean? What do you mean? Take a bit of time off.

I'm getting chucked out. Well, okay. Not sure we need you. I know my cue.

I know my cue. I feel, I feel I've got to go right.

I'll see you both in a minute a bit. Take care. See you later Johnny.

Okay, so Sarah, back to basics. What is a workplace pension?

Yeah, I say we're in charge for the next 20 minutes or so. It's fantastic.

Anyway, so really good question Clare. I think before I start, uh, talking about what a workplace pension is,

I'm just gonna start with the really basic starting point, which is what a pension is. Now of course if you're a pension geek, you'll know that a pension isn't like a savings account that you can sort of dip in and out of when you need money.

It's designed quite simply to provide you with an income when you retire. And that means that you can't take money out when you're in, you know, your thirties or your forties. In fact, you have to be aged 55 or over before you can take any money out of your pension. And that age is rising to 57 in April, 2028.

When it comes to workplace pensions, we'll put very simply, that's just a pension that's provided by your employer.

Now under what's called the automatic enrolment rules, that means that if you're an employee or if you're a worker, so you could be somebody who's on a permanent contract, you could be on a fixed term contract or you could be on something like a zero hours contract. Well, in that case you'll be automatically enrolled into your employer's pension scheme as long as you meet three conditions of automatic enrolment.

So the first condition that relates to your age, so you have to be 22 years of age or older. And under the State Pension age, which is 66, the second condition that relates to where you work.

So you have to work in the UK. And then thirdly, the condition relates to how much you earn.

So you have to earn at least £10,000 a year in order to be automatically enrolled. So far, so simple but not so fast because of course it's pensions, which means it's not always simple. So say for example you have two jobs, you are working part-time, that £10,000 limit applies to each job.

So if you have an example of one person who's earning £10,001 a year from each of their two jobs and under the automatic enrolment rules, they'll be automatically enrolled into two workplace pensions.

But if you have somebody else who's earning £9,999 a year from each of their jobs, then they won't be automatically enrolled into either of their workplace pensions.

Now automatic enrolment just means that you are kind of plunked into your employer's pension without you having to fill in either paper forms or an online form.

But it's not like the pension's equivalent of house arrest because you can opt out of your pension if you want to. Now, once you're in your workplace pension scheme, then that just means that some money will be paid into it both from your own salary, from your employer making their own contributions, and then you'll get a top up from the government in the form of tax relief.

And to give you an idea of what that breaks down to, and I know that pension geeks will know this already and probably recite it regularly in a very sort of broad brush way around 8% of your salary will go into your pension as a minimum. And I say broad brush because there are different ways that companies might calculate how much goes in.

So you could find that less than 8% of your salary goes in, but the way that breaks down is that you pay in 4% as the employee. Your employer pays in 3% of your salary and you get 1% as a top up from the government in the form of tax relief.

Now, tax relief, that's one of those terms that when you mention it, sometimes people's eyes glaze over, but actually normally when I explain it they kind of go, wow, I didn't know it worked like that. So I think it's good to look at an example.

And so if we look on screen right now, if you're a basic rate taxpayer and you want to pay a £100 into your pension, then actually all you have to do is pay £80 into your pension because the government top it up with another £20.

And that's because you're paying basic rate tax at 20%. If you're a higher rate taxpayer or an additional rate taxpayer, you'll get either 40% or 45%. Now on the right hand, um, side of the scheme, you can see an example for a higher rate taxpayer.

So they only need to pay in £60. Now you should say if you are at a higher rate or an additional rate taxpayer, then you might not get that money automatically.

You might have to claim that difference between the 20% and the 40 or 45% back through your self-assessment tax return.

But there is a limit on the amount, of pension contributions you can make and still receive tax relief. Um, but for most people you really don't have to worry about it and that's because it's based on your earnings. So if I earned £20,000 a year, then I could pay £20,000 into a pension and receive tax relief and it's based on my um, earnings.

But you don't have to be earning to be able to make a pension contribution if you're not working.

You can pay up to £2,880 a year and the government topped that up with that 20% to £3,600. Um, and that can go into your pension and you can have a pension at any age including children.

So there are different rates of tax though. And if you live in Scotland, it's worth saying that you might be paying, um, more tax than the rest of the UK. So for example, if you pay 40% tax in England, you'll be paying 42% income tax in Scotland.

But there is good news, the more tax you pay, the more tax relief that you get. So there is a bit of a silver lining to um, paying more tax.

I like your determination to find the silver lining of paying or paying more tax. So anyway, talk to a wee bit there about what a pension is and a bit about how much you can pay in. But let's spend a moment or two talking about the different kind of workplace pensions. So there are two types. The first is a defined benefit pension.

Now that's the kind of pension that most commonly you'll see in the public sector these days. And the key difference with this pension really kicks in at retirement. So when you are working, you get paid your salary every month once you retire, if you have a defined benefit pension, then you'll get a payment that carries on just in the same way as you received your salary. Except it'll be less of course. And the amount that you get when you retire will depend on how long you are in the pension scheme for and your salary. Now, as I said, you'll get that payment that will last throughout your life and if you have a sort of husband, wife, or partner and they outlive you, then they'll get that payment normally for the rest of their lives as well.

Now generally you won't get a defined benefit pension payment until you stop work.

Now the second kind of pension is a defined contribution pension. And that's the kind of pension that you can either take out individually or as we've been discussing through your workplace, your employer scheme.

And with that kind of pension you basically build up a pot of money and then you can convert that into an income, take some money out when you retire.

Now that's the kind of pension that we're really gonna be focusing on for this webinar. And the reason is simply that it's the pension that you are most likely to be paying into now, but you may have a defined benefit pension from a previous job.

You could have both kinds of pension, but as I said, we're gonna be focusing on defined contribution pensions.

I knew I'd do that for this webinar. So, there are ways in which you can pay more into your um, workplace pension.

Now one of those ways is through something called salary sacrifice. And often people have said to me, well my employers mentioned something called salary sacrifice, but I don't really understand what it is now. It's also called salary exchange. And those terms are used interchangeably and what it means is that you give up some of your salary and in return your employer will pay their pension contribution for you and also your pension contribution.

Well that sounds a bit confusing, doesn't it? So again, let's a bit, let's look at an example because I think that will help.

So in the example on screen, we're looking at Sam.

Now there's a lot of numbers here, but what I want you to focus on is that before salary exchange position and the after salary exchange position, so before Sam's salary is £35,000 a year, he pays tax, he pays National Insurance and he pays a pension contribution of £1,400 a year. His employer pays a pension contribution of just over £1,050 a year. His take home pay is £26,000 to £422.

But Sam decides to do salary exchange. So what does that mean? Well, it takes his salary to just below £33,000.

Sam doesn't pay any pension contribution anymore, but his employer pays it on his behalf.

His take home pay is the same £26,422. So why is Sam going to do this? Well, it's because of the tax and National Insurance savings that are made.

And that means that instead of that, £2,500 going into his pension, there's actually £3,251 going into Sam's pension. So a much higher pension contribution.

Now you can be like Sam, and what you can do is have a higher pension contribution, um,

and the same take home pay, but you can also choose to have this, um, the same amount of a pension contribution and actually have more take home pay.

Now salary exchange is a benefit for most people, um, but it is worth mentioning that's a change to your contract and it has to apply for 12 months. Now I mentioned it's a benefit for most people.

There are certain people where salary exchange won't work, but your employer will keep you right about these kind of circumstances.

So for example, you can't salary exchange if it would take, um, your pay below the national minimum wage.

Now not all employers offer salary exchange. If your employer doesn't, there will be tax savings for them. So it is worth asking them about this.

Now there's another, um, thing that can be offered and that's called matching. And again, I think it's worth looking at what I mean when I talk about this.

But essentially what happens is if you pay more into your workplace pension, so will your employer. So there can be all different amounts that employees, employers will match, but in this example, the basic amount being paid into the pension is 4% of salary by the employee and 4% of salary by the employer. But if the employee pays 5%, the employer will pay 5% of salary. If the employee pays 6% of salary, um, the employer will pay 6% of salary.

Now that sounds quite expensive, but it's not as expensive as you think. And if we look onto the next slide, you can see what I mean by that.

So in this scenario before the increase in matching, so this person is doing the basic amount to begin with, they pay £80 into their pension scheme, the government tops that up, that £20 of tax relief and the employer pays a hundred pounds as well into the um, pension.

So £200 a month is going into the pension. But if they choose to do matching to the maximum in this scheme of 6%, what happens is the employee's going to pay £120, the government will top it up with £30 and the employer will pay £150. £300 is going to go into the pension scheme then. So there's an extra £100 going into the pension and it's only cost the employee an extra £40. Quite a good deal.

Yeah, I think this figures really bring to light the difference. As you say, it's not costing the employees so much to have all that extra money going into their pension.

So one of the things about a defined contribution pension is that you can have control over what happens to your pension contributions in terms of where that money's invested. But some research that we've done quite recently shows Clare, I think that there's quite a lot of confusion about what happens to the pension contributions.

So we did some research with our workplace pensions and we did it with a really robust sample size.

So it's 6,000 UK adults of whom four and a half thousand had at least one pension. And what we found was almost one in 10 people.

So it was actually 8% thought that their pension contributions went into a savings account. Now among younger people, so among people aged 18 to 24 who had a pension that rose to one in four, thought their pension money was going into a savings account.

Now I think in some ways it's not surprising, people do get confused, but it is worth just explaining what happens. So the pension contributions, and by that I mean the money that you pay in the money your employer pays in and the tax relief that Clare's been talking about from the government, well that's invested into a fund or funds. And these themselves invest in different assets.

So that could be they're investing in companies by buying shares or they're investing in government debt. Now that's typically called government bonds.

And if we're talking about UK government debt, then it's normally called gilts.

And also it could be investing in commercial property, which could be anything from an office block to a shopping centre.

Now there will be a mix of those different assets depending on the pension provider and depending on the fund you're in.

But this slide here just shows I think some of the sort of the mix of different assets that your pension fund or a pension fund may have. And of course your fund may have a different mix of assets and to different percentages. Now, if you want to know more about how your pension money is invested, then one of our colleagues, Ryan and Paul from Nest did a whole webinar on this yesterday.

So you can, uh, check out the recording of that if you want to know more. Um, yeah, and I think it's just worth talking. Now, I've mentioned a bit about how the money's invested, maybe talking about default funds, what do you think?

Yes, so if you're in a workplace, um, defined contribution pension scheme and you haven't done anything to change your funds, then you'll be in something called the default investment fund.

And I think a lot of pension geeks would know that. What they might not know is the default investment funds will vary from pension scheme to pension scheme.

But there is one thing that's common to all of these and that's that the default fund has to meet the needs of most of the workplace pension scheme members.

But you don't have to stay in that default investment fund. Most people do.

So a large majority of people who are in um, workplace pension schemes will stay in that. But you can switch if you want to.

Now you might want to switch because you want to choose something that aligns with your principles and beliefs.

So you might want to invest in sustainable funds, for example, or compliant fund or you might want to take more risk or, or even less risk. Now you shouldn't be charged if you want to switch between different funds.

What you have to make sure though is that you're comfortable with the level of risk that you're taking if you move, um, funds. And that's really important, isn't it?

Yeah, it really is. I think it's crucial, but it's, I think it can be quite hard to think about risk and to get your head round how much risk you might be taking. So say to take Clare's example, you want to switch from the default fund to riskier funds because you want to generate a bigger income in your retirement. Well, switching into a riskier fund means you're taking more risk.

It doesn't necessarily guarantee that you are gonna get a greater return.

The idea with a, with a riskier fund, basically you are gonna have more volatility. So that means more ups and downs, those ups and downs could be quite sharp. Now the hope is, the idea is that over time those ups and downs really smooth themselves out and there are more ups than downs.

So you get a better return than if you'd kept the money in at a default fund.

But there's absolutely no guarantee that that's the case.

And as with all investments, you could get back less than you pay in.

And I, I think as you said, thinking about risk and the kind of funds that you might want to transfer to that can be quite difficult.

And it's one of those occasions when having a financial adviser is really useful. But we know that a lot of people don't have a financial adviser.

And you may not have an adviser, particularly if you are younger, but we've got lots of really useful content on our website, Royal London.com, we've got an article on what a financial adviser does, how to prepare yourself to talk to a financial adviser, kind of questions to think about.

And also we explain the different advisor directories where you might be able to find, uh, a financial adviser.

So that's something that's really useful to check out.

 

I think that is really useful. But you might be thinking, well, where do I find out, um, where my funds are invested? So it'll tell you in your annual pension statement, your provider might have an app that you can log into and you can look there, um, or you could have an online portal and again, you could log in and find out what you're invested in.

But I want to move on to thinking about something different now. Now Sarah, you mentioned that we had carried out some research and that research also showed that one in five people didn't know how much they were paying a month into their pension. Not only that, but even if people did know what they were paying into their pension, 40% of people didn't know that if that was going to be enough to give them the retirement they wanted.

So a lot of people in the dark about knowing how much they needed to save for retirement to give them that retirement lifestyle they want.

And I think this can be quite a challenge for some people, understandably, to think, well how, how much do I need in retirement?

How much do I need to save?

And I think it is really important to kind of start at the end, if you know what I mean, to work backwards.

So to try and think about what kind of lifestyle do you want in retirement and what's the kind of things that you want to spend money on.

So I think the two biggest factors that are going to influence how much money you need to have at retirement and therefore working back, how much you need to save are when you want to retire, and the kind of standard of living that you want to have in retirement.

So it is useful to think about some of the things you might want to be spending your money on. Now if you have a budget already, I think that makes the task much, much easier because you'll already know you'll have a list of the money coming in and the money going out and you can sort of look at those and think, well, I'll be spending this money when I retire. I won't be spending this, I might be spending less on that. I do think though, you know, obviously we love pensions. We find them utterly fascinating, but strangely, strangely, not everybody's like us.

And I think thinking about budgets and pensions and retirement and planning, it can make some people want to run into a darkened room with a damp towel.

And I think if, if that's your reaction then maybe it's about shifting how you think about retirement. So rather than thinking about the numbers and about, you know, think about, okay, even if you don't want to retire for years, you love your job, you want to carry on working well, that's fantastic, but having enough money into your pension doesn't mean you have to stop work.

You can carry on if you want to. What it does mean is you don't have to work in order to pay your bills. How fab would that be? So I think, you know, once you've shifted your thinking about retirement and maybe started to work out what you might want to do in retirement and what that might cost you, I think a good starting point is to think, okay, assuming I've got no pension at all, what would I have to live on in retirement?

And for most people that's gonna be the State Pension.

So under the new State Pension rules, assuming that you've got a full National Insurance contributions records, that's 35 years, I've either you've paid of National Insurance or been credited with, then the State Pension will pay you £10,636, this year. Now that works out at £886 a month or so.

Now obviously State Pension amount goes up normally every April.

So you're thinking, okay, £10,636, still don't know what that's gonna buy me in retirement. Can't quite picture how I'm gonna live.

Well let me save you the trouble because last year I and five of uh, our Royal London customers lived on the State Pension for a week.

We did a State Pension challenge. And I remember talking to you about this at the time, Clare, that it was actually really hard. I think we all found it quite difficult.

And I think the two things that I took away from it was firstly, there's there's no slack in the system. So, you know,

I found that I had very little money left over, certainly not anything to kind of build-up savings with or to kind of think if I had one of those unexpected expenses, I'd have some money left to pay for it.

And the other is being brutally honest, I think it's one thing living on the State Pension for a week, it's another thinking, this is gonna be what I have to live on year after year and retirement could be 20, 25, even 30 years. So I think the next thing to think about is, okay, I know how much the State Pension's gonna give me, how much more than the State Pension do I want to live on?

One thing to just say about the State Pension before Clare picks up, which is if you want to know more about the State Pension, we've got a guide on our website, which I wrote, which explains the, the basics of how the State Pension works. And tomorrow says, Steve Webb is doing a, a Pension Geeks webinar, a Pensions Awareness Day webinar, all about the State Pension.

So do sign up for that if you haven't already. But as I said, I think one thing that I found helpful as a result of doing this living on the State Pension challenge was start to think about what do I want to do in retirement and what might that cost me start to mark out some costs against it.

And there's a really useful website called the Retirement Living standards, dot org.uk.

Now that website is based on independent research and they are really looking at what you would need in an annual income to have the lifestyle that you would want to have.

So you'll see different amounts and research have sort of kind of looked into that to see um, you know, what different lifestyles, um, would mean for different people.

Now it's important to say that these numbers I'm going to mention they're based on the fact that people won't have a mortgage and they won't have any rent to pay and any tax on pension income, uh, will be paid.

So there's three lifestyles. So if you, if you're single and you live outside London and you're happy, having minimum lifestyle in retirement doesn't sound

Good, I have to say doesn't sound good.

I think most people probably wouldn't want to have a minimum lifestyle, but the researchers reckon you need to have £12,000, um, £800 a year if you want to have a moderate lifestyle. So a bit better, you'll need £23,300. And for a comfortable lifestyle, well that's £37,300.

Now for each of these lifestyles, where the website's really useful is that it explains that what you could do with that money and what you could afford to do. So how much could you spend on food, clothes, shoes, doing up your bathroom, kitchen, how many holidays or the type of holidays that you could go on and if you could afford to have a car, um, and if you can afford to have a car, how often you'd be able to replace them. Now if you're part of a couple, um, the numbers increase but they don't double. And that's because it, you know, it costs less for two people living together than two people living separately.

So as a bit of a guide, um, instead of £23,300 for a single person, um, on a um, moderate lifestyle, you'd need £34,000.

Now it's worth saying if someone has um, reached State Pension age and they have their full contributions, then State Pension could um, you know, use up some of that money essentially. So you're £10,636.

Well if you were looking at that £12,800, that's going to make up a fair proportion of that money, but it doesn't cover all of it.

That's right.

And I think you mentioned there about the State Pension and being a State Pension age and I, I, 'cause we know now the State Pension age is 66,

I mentioned that right at the beginning. But thinking again about your retirement, I think it's another really important factor to consider is when do you actually want to stop work?

Do you want to have to carry on working whatever lifestyle you want, whether it's minimum, moderate or comfortable until you get your State Pension?

Which as we know the State Pension age is rising.

So it's just one thing to bear in mind. Most people don't.

No, they don't want to work till 66, 67 60.

We've all got an idea that we'd love to retire earlier than

That. Absolutely.

And we did some State Pension research over the summer and I think that showed a lot of people wanted to retire either 60 or 65, didn't want to wait until the State Pension.

But I suppose one thought that sort of is occurring is what happens if you are in the enviable position where you are on a really good salary and you're thinking actually help, I maybe want to make up a bit of a for lost time.

I want to tip a whole load of money into my pension. Now again, I know know we're in a cost of living crisis, but let's just assume you are on a really good salary and you could actually afford to pay your whole salary into your pension. Bear with me on this one.

So say you've got a hundred thousand pounds, could you put that hundred thousand pounds into your pension?

Well the answer is yes, but there could be tax consequences. And the reason for that is something called the annual allowance.

Now the annual allowance is the maximum amount that you can pay into a pension in any one tax year without facing a tax charge.

Now the annual allowance is currently £60,000. So for most people it's not relevant because you know, most of us are paying far less than £60,000 a year into our pension.

But I think it's still worth understanding how it works.

So with this example of somebody who's in this fortunate position, they're in a hundred thousand pounds a year, they have no expenses, they want to put it all into their pension.

They could put £60,000 of that hundred thousand pounds into their pension without facing a tax charge.

But if they wanted to put more in and potentially there could be tax consequences, but there is a tax concession and that's called carry forward.

And what that means is that you can go back for up the last three tax years and if you haven't put in the full annual allowance into your pension, then you can potentially do that. Now again, this could be another darkened room, head melting moment.

So this is another situation where I think a financial adviser is really helpful because they can just explain the different amounts that you could put in and make sure that you are kind of right in terms of your tax and sorting out your self-assessment return. For example. I think it's particularly important to get financial advice if you are a very high earner and you are in a defined benefit pension.

The reason is that working out how much you could pay in isn't as simple as sort of taking a percentage of your salary. Now, if you are thinking carry forward sounds fascinating, I really want to read a whole more load more about it then the government backed money helper website has a really useful article on that and that's at moneyhelper.org.uk. I think though, if we think back to Clare when we've been doing, um, webinars together, um, our Royal London webinars, the question that's come up almost at every webinar we've done, the most common question has been about I've got pensions from old, you know, previous jobs, should I consolidate them into one pension?

So in the last few minutes I think I'll just spend a moment talking about this and as you might expect there isn't a simple answer. The answer is yes, potentially you could and possibly in some situations, situations you should, but definitely not all.

And there are some situations where you absolutely can't do it. So for example, if you are in a defined benefit, you know, one of these public sector pension schemes such as the NHS, teachers, police, or firefighters, then you can't transfer anyway.

And the reason is there's no fund for you to transfer.

So the pension contributions that you pay today go to pay today's pensioners.

The one exception is the local government scheme because there you are actually building up a fund. So you could in theory transfer it, but it's generally assumed to be a bad idea. So let's assume you're not in that situation, but instead you've got maybe three or four defined contribution pensions from previous jobs and you're trying to work out whether or not to transfer them.

One of the most common reasons why people think about transferring is for charges.

And by that I mean they want to transfer to a pension that charges a lower charge than the one or ones that they have from their previous jobs.

And it's definitely the case that putting your money into with a pension provider or or in funds that have lower charges can be a good idea, but cheapest isn't always the best.

You might be paying a bit extra for one or more of your pensions, but it could have features that are really valuable to you.

The second reason why people might transfer is to get a wider variety of investments or potentially you might, as Clare mentioned earlier on, be really interested in sustainable or responsible investing.

So you want to move to a pension provider that specializes in those kind of investments. Transferring though to get a better return, there's, there's absolutely no guarantee. As I was talking about earlier on with risk, there's no guarantee that you will get a better return if you transfer.

There are, there is one other situation where you might want to transfer, for example, if you've got some old pensions that are quite restricted in terms of how you can take money out. So for example, when you retire they might want you to take out all your pension in one or that that's a pensions word by the way. Or they might, um, not let you do something called income.

Draw down one last sort of word of warning, which is if you have some old style pensions, they could have some valuable guarantees that you would give up by transferring.

So for example, they may give you a, a guaranteed rate that you would benefit from if you bought an annuity or a guaranteed value.

If again you're thinking actually I would really like to know more about this then the Association of British Insurers, the ABI and cushion are doing a whole webinar on kind of everything you need to know about transferring your pension. And that's tomorrow.

So for the last couple of minutes I want to talk about stopping paying into your pension. And you might be thinking, well why is someone from a pension company telling me to stop paying into my pension? Well, I'm not. Why? Well, research shows us that people are not paying enough into their pensions. Um, and I've never met anyone who's retired and said, I wish I'd, you know, I'd paid less than my wish.

I had best money in my retirement. Yes, always, always the opposite.

But the second reason is because of the fact that if you're in a workplace scheme, you're getting the benefit of those employer contributions.

And it might be that you're getting really generous employer contributions like we spoke about earlier through salary sacrifice. Um, and because of matching and don't forget the benefits of tax relief too, but if you are thinking about reducing your pension contributions or pausing them, um, then I want you to think about now, but I also want you to think about the future. And again, we've got an example on screen just to help us think through this.

So in this scenario we have someone who's, um, in a matching scheme, it's quite a high matching scheme and that's just to sort of show the fact that this person would save a lot more if they stopped paying into their pension than someone who was, um, in a kind of a, a lower matching scheme, for example.

So in this scenario, if this person stopped paying into their pension, then they would, um, save £187 a month.

So that would go into their bank account, but they'd be losing out on £546 a month going into their pension. Now if we think about this on an annual basis, we look at the next slide. Well what does that mean? Well, it means that, you know, in your bank account you would have £2,244 more in a year, but you would've lost over £6,500, um, in pension contributions in that year.

And of course pensions are for the future. So if you're 40 now and you want to retire at 60, then in 20 years’ time that just over £6,500 could be worth over £16,500, um, using 5% growth, um, after charges.

So it's really important not just to think about saving money now, but also about the future. But it's really important to see that we are in the middle of a cost of living crisis and for people who are struggling to pay their bills, then pausing or reducing pension contributions could be the best um, idea. So we have covered a huge amount in the last 25 or so minutes, um, but there might be topics that we haven't covered. Indeed, indeed.

So I think it's time now to, um, look at some questions. Yeah, so we did say everything you want to know about pensions, but we're afraid to ask. So there may be some things that we, you know, that people are not afraid to ask but actually want to know the answers to. So, uh, have we had any questions? Is there anything that's come through?

Hello? Hello? Hello? Hello, hello, I'm back. I've been, I've been sent to the back of the classroom. Good. I'm here, I'm here.

Hopefully I enjoyed that. Hey, what a great show. I've learned so much. I've made loads of notes on my pad, I've learned about salary exchange.

I dunno how you both made this subject so simple. I really, really love. Lovely to hear. Um, really interested. I'm gonna talk, ask more about, um, children having a pension and never realised you could could start so young.

So that's really good. Um, there's a popular present under the Christmas tree. Children love it. Honestly.

They will love, they will love unwrapping a pension more than anything else.

So honestly try it.

Well, we'll try that, we'll try that.

And also really good to know more about, you know, PAing your pension.

It is something a lot of people are thinking about right now. Yeah, yeah.

But knowing what you can potentially be missing out on. Yeah, really important.

So thank you for that. Um, I just wanted to, before we go to questions, so we have lots of lots of questions for you today. Um, I wanted to quickly go to the Pension Awareness website.

So you are all on this now, obviously watching this show. But afterwards, please don't click on anything now 'cause we'll be uh, cut short. Um, but go and use this website after the show.

 

You can book on more shows. Um, as Sarah said earlier, there's um, Steve Webb coming on Thursday. Um, is he Thursday or tomorrow? Wednesday.

Wednesday he's coming tomorrow. Um, you can book on the and uh, listen to the State Pension also, um, that we've got a useful resource section and if you go there, we've got all the links to what Sarah and Clare have just mentioned to the Royal London site to the money helper site.

So all the great stuff that they've just mentioned, you're allowed to see it there. So, um, brilliant. I'm gonna go back to both, both of you now and let's, let's tackle some of these questions. Well, Johnny,

They've made me head of head of questions, so I'm gonna, I'm gonna go through, this is very this is very dangerous giving me any kind of responsibility or control. So anyway, uh, we've got some fantastic questions as you said.

So the first one is, uh, Clare and you were talking about matching earlier on.

So this is a question from James. It says, can you increase the amount paid into a matching pension mid-year or does it always have to be once a year?

So that's an interesting one to ask.

And so in many schemes it would be fine just to, um, to go on to kind of your online portal, however it works in your workplace to have a look and um, to look at kind of the, the rules, basically what it says, um, and increase.

Now often what it'll show you is a kind of quote, so it'll say, you know,

I showed that example of, of the difference before and after and it will show you something like that

saying it costs you this just now and it'll cost you that. So you, you don't normally need to wait for kind of the end of your year or the end of the tax year.

You can normally do it at that point in time but check with your employer.

That's um, the top tip I would give you. Okay, we've had a related question which is from Graham and it says, I understand you can pay a company bonus directly into your pension.

Does every employer offer this and are there tax benefits for doing that? So bonus exchange is really popular and it works in exactly the same way a salary exchange. Um, but you know, it is up to your employer whether they offer that.

Normally what happens is before it comes time for your bonus to be paid, you would have to ask for, you know, it might be all of your bonus you would pay in and especially as you're guessing

I got it, yeah, yeah.

If you're getting closer to these you can take money outta pensions and that's probably, you know, a really good thing to do. Um, but yeah, it's kind of check see what your employer allows and um, and you know, there will be timescales in which you have to do that. So again, your employer will keep you out.

They'll probably send reminders when it's coming up to bonus time.

And you mentioned there about being able to choose how much goes into your pension and it will depend on your employer. There are different ways, but what they might do is say that you can for example say I want to have hundred percent of my bonus going into my pension up to £10,000.

Or I want 50% of my bonus going into my pension up to £10,000 depending onthe kind of bonus that you get. So you can often say a percentage, a maximum percentage or a maximum amount or sort of both.

So you are in control in terms of working out how much it doesn't have to be all or nothing, which I think is probably worth pointing out.

So we've had a question here, um, saying I have several pensions from having had several employers.

 

Does it make sense to put them all in my most recent employer's pension?

What should I be mindful of and do I have to have professional financial advice?

And I think hand over to you because obviously this is what I was talking about right at the end of the webinar and I mean I just touched on a few of the reasons why you might want to consider transferring your pension and then a couple of things to be aware of and when you actually can't do it. As I said, there is a webinar tomorrow that covers this in much more depth, so do sign up for that.

But I think it also comes a little bit down to the kind of person you are because I think some people find it quite easy to keep track of several different pensions. It doesn't, you know, it doesn't faze them at all.

It's not a problem.

Other people find it a bit head melty to have different pensions with different, you know, different pension providers and actually like to be able to see something all in the same place. Now, uh, coming down the track there's something called pensions dashboard, which is hopefully going to mean that you can see your pensions in one place but that's not gonna be coming uh, on stream for another couple of years or so.

But if you're the kind of person who just wants to see everything together, that might kind of address that issue for you.

So I think it's as well thinking about the kind of issues that I mentioned, but also the kind of person you are.

Some people just find it easy to think about their retirement and picture it if they have their pensions in one place. Yeah and I think it's, I think it's worth saying that um, if you are aren't moving your pensions and they are, you know, I mean some people might have up to eight potentially different pensions from different jobs, don't forget about them. So if you move house, let the pension provider know they need to be sending information to the right place.

There's lots of money around which is in lost pensions because people haven't kept billion, isn't billions of pounds. Absolutely. Um, so you know, and you can try and find your lost pensions as well.

And again there's a session on that later this week, so that's one to watch too.

Um, but so keep them up to date.

And also things like each pension Sarah will laugh 'cause I'm always talking about death really cheery, but you know, if you die and you're in a defined pen, uh, uh, contribution pension scheme, then that would go to your loved ones or whoever, um, you nominated.

So make sure all of the forms for all of these schemes are up to date as well.

So, you know, you might have got divorced, you might have separated from someone, you might have fallen out with one of your children.

So just make sure all of the admin is up to date, um, if you do have them in lots of pensions.

Okay. Um, so we've had a couple more questions. One is, is the State Pension amount affected by how much you get from a private pension?

Easy one. This one Clare, what's the answer?

So the State Pension is, is universal. Um, and everybody is entitled to receive the State Pension.

Now one thing to mention and I'm as long as they paid enough,

As long as they paid. Yeah.

So people have to remember you have to claim the State Pension. Um, and I think Steve will be talking about this probably tomorrow.

You need your 35 years of contributions to get the full amount of State Pension.

And that's National Insurance contributions, that's National Insurance. So that's contributions or credit.

So if you've been um, a, a parent for example, then you'll be catered. Catered or maybe, uh, so yeah, so it's kind of, but State Pension is a universal benefit.

Now I think maybe what this question is getting at is that your private pensions can impact some other benefits. So I dunno. Sarah, do you want to pick up on that?

Yeah, so there, there are, there is a benefit called pension credit, which is available to people who've reached State Pension age.

And that's really designed to provide people with the minimum standard of income in retirement. So it's a little, it's a smidge under the State Pension amount and in that case if you had private pensions as well, then you'd be less likely to get pension credit because you'd be getting over that State Pension sort of income amount. But in terms of State Pension, the basic amount that we were talking about, that 10,636, then if you have private pensions, that's not gonna mean that you lose your, you know, your State Pension. I think we are running outta time, but just maybe one to sneak in, which is if you do salary exchange and reduce your National Insurance payments, will that affect your State Pension

Pension? Um, no because you will still be credited.

So after um, 2016 everybody gets, you know, kind of a year of National Insurance. If you pay National Insurance and you're over, there's kind of a minimum amount.

If you're over that then you'll be credited with a year.

Now that used to be different. There was something called contracting out, I'll leave this for uh, so Steve to talk about tomorrow Steve. Yeah. Um, but that did have an impact.

Some people who were contracted out and they paid less National Insurance.

But no, kind of moving forward, if you're working, if you earn the minimum that's required and you're paying National Insurance, then you'll receive a year's worth of contributions for that and that will go towards your 35 years and Johnny's back. I'm coming back right now. We've done all hard work.

You're gonna swamp back in. We're not gonna let you go that easy.

We won't do two more because the demand honestly, can you fit in just two more questions? Yeah, yeah, absolutely.

I'm sorry for asking two more. No, no, no, no. It was so good.

So, um, should I pick them from here or have you got

Yes, you, you, you keep going. Yeah, so there's one that's a, I think, I think it's quite simple answer but we'll see.

But which is, I'm not sure about increasing my regular contributions but could make occasional one-off lump sum payments into my pension. Is that possible?

Yes, absolutely. That's what we've got. Time. No,

Go on.

So some people want to, um, wait till later in the tax year and neither maybe bonus time.

There's different reasons why people, um, want to kind of pay at certain points now it just, you know, you have that regular amount set up, but also people might have inherited some money, they might want to pay kinda an extra 5,000 now as long as you have the earnings to support it. So back to that kinda £20,00, um, that, you know, you've got to have um, the earnings support, whatever

Your earnings amounted supported. Yes, yes. Yeah. Um, then you might want to pay extra amounts at certain points of time. So yes, definitely you can do that. And I think it's useful. I, I spent most of my life, my working life being self-employed and you know, paying regular amounts sometimes could be a bit difficult in terms of cash flow, but making lump sum payments was something when you knew how much money you had, that was easier. So one last question speaking one please. Please. Okay, please.

Alright, so this is a question from James saying can you retire early, say age 62 and then work two days a week to top up your lifestyle?

I think this is a great question.

I think this is really common now.

So what we're not seeing is people stop and work one day and being retired, people are just deciding they want to change the way they work.

People are having many different jobs, sometimes many different careers. So it might be you don't want the same kind of stress of one job, um, but if you're in a defined contribution pension scheme, but you can do is kind of take some of your pension to top up your sort of salary to what it would've been before, some of it through part-time working and some of it through taking your pension.

And it's a bit different in the defined benefit world.

So if you're a public sector worker for example, um, then you normally have to stop, take your pension.

Some people do go back to work in the public sector, but that's a, that would a whole other session, whole other webinar. But um, yeah, I think we're seeing more and more people, retirement is a flexible thing now. So we are seeing people, um, working how they want to work and working the hours they want to work.

Sorry for, and that's our last word that's gonna say all. No, thank you so much to both of you. What a great session.

It was fantastic and so many people watching so many questions.

You're very welcome. Um, so big thank you.

Will you come and join us again in Grimsby and do another show? Oh yeah, absolutely. We are on the next train.

Brilliant. We'd love that. And thank you to all of you for joining us. Well, we've loved this session today and we've loved you joining us.

Tomorrow at 10 o'clock we've got a show on the gender pensions gap.

If you haven't signed up for this, make sure you do by going to the website pension awareness day.com and we'd love to see you there. See you soon. Bye. Bye.

Sarah Pennells: Hi, I'm Sarah Pennells and I'm Royal London's consumer finance specialist.

Clare Moffat: And I'm Clare Moffat and I'm the pensions and legal expert here at Royal London.

Sarah Pennells: And in today's webinar, we're gonna be talking about what happens when you're gone. Now, I know it sounds like a fairly morbid topic, but death is something that, sadly, none of us can avoid, and we know, from the number of questions that we get that people do want to prepare for what happens when they die. Now, death can be an awful time for family and friends, and it can be made worse if, for example, finances are complex, if family members don't get on or if they struggle to talk about death. Now, this week is Dying Matters Awareness Week, which is designed to encourage people to talk about death, dying and grief, so it seemed like a good time for us to be talking about this topic.

Clare Moffat: We've read every question that came in and we'd like to say a big thank you if you submitted a question ahead of this webinar. We'll be answering some of the most popular questions in the next 45 minutes or so, but if you'd like to ask a question as we go through, we've left some time at the end to answer them and we'd love to hear from you. But, as with all of our webinars, we can't answer a question that's about your specific circumstances or a Royal London policy. Now, if you'd like to leave a comment or a question, you can do so via the Slido link, but before we go any further, I'd just like to remind you that we're recording this webinar and we'll share the link to the recording afterwards with everyone who registered for it. So, Sarah, we often get asked questions about what happens to your pension when you die, but shall we begin with State Pensions? Now, just about every one of us will get a State Pension, so it's worth knowing what happens to that when you die, and it's exactly what Linda and Alistair wanted to know when they submitted their questions when they registered for the webinar.

Sarah Pennells: And it is a really good question but I think, before I answer it, I'd like to do our first poll. So, to flip the question round, do you know what happens to your State Pension when you die? So, please vote now using Slido. Okay, so just getting some votes coming in. Most people at the moment are saying they don't know, but about one in five people saying they, they do know, one in four, and, and quite a number of people saying, 'Not really thought about it,' which is, kind of, understandable. It's not one of those things that you need to think-, you necessarily think about until, you know, possibly you feel you have to. So, okay, I, I guess I would say, at the moment, it's settled down, it's saying 53% of people who voted don't know, and those results are not surprising because there isn't a one-line answer. The answer depends on when you reach State Pension age, and that, as we've mentioned, if you've joined our previous webinars, is when you can claim your State Pension, not when you retire. Now, the crucial date to bear in mind is April 6th 2016 because that's when the new State Pension system was introduced, and that system brought with it some new rules on when you could inherit someone's State Pension and how much you may be able to inherit.

So, if you haven't yet reached State Pension age or you were able to claim your State Pension on or after April 6th 2016, then your husband, wife or civil partner may be able to inherit part of what's called a protected payment when you die. So, I'll explain this a bit more with a slide. So, before April 2016, there was the basic State Pension system, and if you were employed, and for a while, if you were on benefits, then you could build up an additional pension. Now, that two-tier structure was abolished in 2016 but you were able to keep what you'd built up before then if it was more than you would get under the new State Pension system. Now, this bit that you could keep is called the protected payment and it was designed to make sure that you weren't worse off when the new system was introduced. So, some people have this protected payment as part of their State Pension, and part of that element can be passed on to your husband, wife or civil partner when you die.

Clare Moffat: But what about people who've reached State Pension age before April 6th 2016? Are they treated differently?

Sarah Pennells: Yes, they are. So, if-, we'll, we'll look now at if your husband, wife or civil partner reached State Pension age before that date because it's the age of the person-, it, it's the date the person reaches State Pension age that determines whether you can inherit any of their State Pension. So, in that case, if they reach State Pension age before April 6th 2016 or if it was after then but they died before April 26th-, April 6th 2016, then, in that case, you could inherit part of their additional State Pension. That's the pension I just mentioned that, kind of, sits on top of the old basic State Pension system. Now, I'm aware that this is probably quite head-melty and I don't want to go into more detail because I think it is quite complicated, but hopefully, that's given you a bit of an idea of the principle of what you may be able to inherit and why this date of April 6th is so important. Now, there is a really useful section of the gov.uk website that you can go to and you can put in details of your own situation, and then you'll get information on what you might be able to inherit. So, the website address is www.gov.uk/state-pension-through-partner. Now, don't worry if you don't have those details because we'll have information about this, this link and any other links that we mention in the webinar when we send out details of the recording, which will go to everyone who's registered. Now, one last thing before we leave the topic of State Pensions, which is that you can't inherit parts of your husband, wife or civil partner's pension if you remarry or form a new civil partnership before you reach State Pension age.

Clare Moffat: So, thanks, Sarah, but what about other pensions that you might have, like a workplace pension?

Sarah Pennells: Well, if you have a workplace pension, then the benefits that are available to you depend on the type of workplace pension scheme that you're in. Now, you might have heard about a defined benefit pension, now that's the type of pension where you get a regular payment. The employer promises to pay you a regular payment for the rest of your life, and that normally starts when you stop work. It's more commonly described as a final salary pension, but that's actually one type of defined benefit pension. Now, these days, you're most likely to see defined benefit pensions in the public sector. Now, the second type of pension is called a defined contribution pension, that's the type where a pension provider offers you, either individually or through your job, and in this case, you build up a pot of money and then you use that money to provide you with an income when you retire. And this is the type of pension that you're likely to be in, either through your workplace if you're in the private sector or if you've taken out a pension individually, a personal pension. Now, some people, of course, may have a mix of both of these types of pensions. So, Clare, first of all, tell us what happens if you have a defined contribution pension when you die.

Clare Moffat: Well, before I do that, to get one piece of jargon out of the way, when we talk about who might be entitled to your pension when you die, we're going to use the term beneficiaries. Now, that simply means the person or people who'll receive your pension or other assets. Now, it could be your closest family member, such as your husband or wife or partner, but it's not always the case. It could be friends or charities or trusts. Now, we've had so many questions about passing on pensions and what happens to your pension when you die, including from Alex, Agnes, Jean and many, many more people. So, we're going to take some time to explain this. Now, the next part, it's a bit tricky but it's important to know about the way that death benefits for defined contribution pensions are paid out by the pension company. Now, hopefully, this slide helps. Let's look at the left-hand side of the slide. The most common way is called 'discretion', now, that means that you can tell the pension company who you would like to receive your pension but they don't have to follow these instructions.

Sarah Pennells: Now, that sounds a bit odd, but the important point is the pension company will pay who they think you want to get your pension, and that can be anybody. Now, we had a question from Anna, who said, 'Who can be a beneficiary if I have no dependents?' And the answer is that, in most pensions, that you can choose anybody, as Clare just mentioned, friends, family, but also charities and so on. So, the first thing is that when you join a pension scheme through your workplace, you'll be asked to fill in a, a-, an expression of wish or it's sometimes called a nomination of beneficiary form, and this is the form where you put down the names of the person or people you'd like to receive your pension. Now, they are your beneficiaries.

Clare Moffat: So, so, as you've said, Sarah, you fill in an expression of wish paper form or online or via the app. Now, for example, I've said that I'd like my husband and three children to receive my pension. If I died, the company would investigate. They'd look at how recently I filled in my form and any other evidence, to find out what I wanted to happen. If my form was recent and my circumstances hadn't changed, then they'd offer my husband and children the pension death benefits.

Sarah Pennells: And, Clare, if you hadn't filled in a form, then they would still find out who should get the benefits, or if you'd had another baby or got divorced, then they could, for example, give more to your children and the new child.

Clare Moffat: Exactly, there's this flexibility, which means your pension should always be going to the right people. It also means that your pension won't normally be subject to Inheritance Tax. Now, you might think that Inheritance Tax doesn't apply to you, but passing on your pension in this way, discretion, also means that your family won't have to wait until your will, or intestacy if you don't have a will, is sorted out to offer the death benefits, so it can be paid out much quicker. If you've got an up-to-date expression of wish or nomination form or you've updated the app recently, then this shows exactly who you would like to receive your pension when you die, but, Sarah, I know you've seen some examples of cases where these forms weren't up to date.

Sarah Pennells: Yes, I have. Now, I did once see a form that was twenty years old and the man had been married at the time he'd filled it in but he'd then married another four times and had had children in every relationship. So, it was really tricky to work out what he actually wanted to happen with his pension, but the pension company investigated, and that included getting a lot of evidence from family members, from the solicitor, the financial advisor and so on, but they worked out who to pay. Now, not every case is going to be as tricky as this, but filling in your form or doing this online or via your provider's app is really important, especially if there are any changes in your life. But, Clare, you mentioned that there's discretion or, you know, the company making the final decision is the most common way for a pension provider to decide who should receive a pension payment after someone dies, but what about the other way?

Clare Moffat: So, there is a way where whoever you say should be paid is paid. Now, if we look at the slide again, this time the right-hand side, the company will pay whoever is named on the form without investigation. Now, this way means that Inheritance Tax might need to be paid if you're over the Inheritance Tax limit because it's you that's making the final decision about what happens, like you would with any other asset you would leave. Now, it means that it's even more important to keep nomination of beneficiary forms up-to-date, and if the form was filled out years ago, it could mean that, for example, and ex-spouse would receive the money. Now, if you haven't filled in the form, then the pension company will pay to your executors if you have a will. Now, those are the people who you name in your will and they have a legal responsibility for making sure that the wishes in your will are carried out.

Sarah Pennells: So, if I go back to the example of the man who'd been married five times, if his pension was set up in that way, that would have meant his first wife would have received the money and nobody else, and that's why it's not as common to see this because it's really useful for the pension company to have some flexibility about who your pension is paid to if you die. Now, on a related topic, we had a question from Jane about whether she could leave her pension asset to her children when she dies. Now, the answer to that-, to that would normally be yes, but, Jane, you might want to make sure you've filled out your expression of wish or nomination of beneficiary form recently and that it does reflect your current wishes.

Clare Moffat: Now, we've had another question from Colin, which I think's really important too. 'I've just started a new job and I've been sent two forms about what happens if I die. Are they both the same?'

Sarah Pennells: No. I suspect that one of these forms relates to the pension, but the other form is for something called 'death in service' and these are two separate benefits. Now, death in service benefit is an amount of money that would be paid out if you died while you were still working for that company, but if you left the job or you retired, then you wouldn't get a death in service payment. Now, it's most common to see death in service benefit as a multiple of your salary, so your beneficiaries might get a lump sum that's work, for example, four times your salary. Now, while death in service would only be paid out if you died while working for your employer, your pension is entirely separate. Now, it might well be that you want your death in service benefit and your pension to go to the same person or people or organisation, but that isn't necessarily the case. You might want them to go to different people. So, Colin, do make sure that you've filled out both the forms. So, before we go any further, linked to what I've just been talking about, I think, let's do another poll, and I'd like to know if you filled in both forms from your employer or whether you think you just filled in the, the pension form, death in service only or you're not sure, so please vote now using the Slido link. Okay, well, this is very impressive, over-, about 80%, so four in five, have filled in both forms, which is fantastic, so great stuff.

Clare Moffat: Good news.

Sarah Pennells: Yeah, really good news, actually. Some are-, some are not sure actually, that, that's now coming up. I said it was 80%, it's now come down to 50% but it really is worth checking, and I think it is confusing. People don't necessarily expect to have two forms but, you know, it's really worth going back and just checking to see whether you have filled in both those forms.

Clare Moffat: So, let's go into more detail now about who can receive benefits. So, you might be paying into your defined contribution pension or you might have moved your pension pot into income drawdown, so you could take a regular income from it, or you might have both. If you die, then the choices for your beneficiaries are normally the same but it is worth checking with your pension, though. Now, we're going to be talking about what happens in a fully flexible defined contribution pension scheme, so that just means it offers a full choice of death benefits but also that they can be paid to anyone, but there are some old pensions where the choice is more limited in relation to the benefits and also who can receive. So, it's something that you should check. Now, it's-, we've explained that you can choose who you would like to receive your defined contribution pension when you die but it's up to the person or, or the people chosen to pick how they would like to receive it. So, again, I think this might be better explained on-screen. So, here, we've got the person with the pension pot. Now, they've said they would like their three grown-up children to receive the money. The children are 19, 21 and 23. Now, on the person's death, the pension company have looked at the expression of wish form, they've done that investigation and then they've chosen to offer the death benefits to the children.

Now, there is a choice of how the pension money could be paid, so they could have a cash lump sum, taking it all out, they could move it into income drawdown or they could buy an annuity. Now, that would give them a guaranteed regular income for life, but that would be fairly unusual now. So, let's say the youngest child wants to take all of the money out as a lump sum because she wants to go travelling. So, the money leaves the pension scheme and it goes into her bank account. The middle child, well, they're at university, and the eldest is working and they want some help with expenses, so both don't want a lump sum, and instead, they prefer a regular income but maybe the opportunity to take more out sometimes. So, they take advice on how this should be invested from a financial advisor, and then the money is moved from that-, the parents' pot into their own drawdown fund.

Sarah Pennells: So, that's an important point, that your children or whoever your pension is paid to after you die don't have to take it as a lump sum if they don't want to, but equally, if that works best for them, then they can, and on a related point, Michael has asked a really good question, which is, 'If you leave your pension to somebody under the age of 57, can they take income from it subject to tax?' And again, this is a common query because normally, pensions can't be paid out before someone is age 55, and that age threshold is due to rise to 57 in April 2028, so five years' time. Now, when someone is a beneficiary and chooses drawdown, it works the same as drawdown for somebody who's over the age of 55, but the difference is that you can access it at any age. It is important to point out, as Clare mentioned a moment ago, that that pension money is invested though, so, as with regular drawdown, getting financial advice is important. Now, the children can take out a regular income every month, every year or not at all. Well, I hope, Michael, that that answers your question.

Clare Moffat: And another common question we get asked is about passing on pensions through multiple generations, and again, I think it's useful to look at a slide. So, if you have been a beneficiary and you chose to move that money into drawdown but perhaps you've not taken any money out or there's some money left in the pot when you die, then your fund can also pass on to who you would like to receive it too, and if they die, it can be passed on again and again and again until there's no money left. So, if you are a beneficiary and decide to put the money into drawdown, of course, you need to remember and fill in an expression of wish form too. Now, there's another point that we need to flag up here though, and again, this sounds quite complex but it's important. Putting everyone you might, theoretically, want to benefit on your expression of wish form is key. Now, again, I think this is better talked through with a slide, so let's go back to your example of the three children. If there'd been an old expression of wish form or nomination form, say it was an ex-spouse on it instead of the children, well, the pension company have decided that the children should receive the benefits, but there's a problem around what they can offer to all of the beneficiaries, excuse me. And that's because there are only two dependents that are alive, excuse me, I've got a bit of a cough.

Sarah Pennells: Yes, no, no problem. So, and that's because, as Clare said, there are only two dependents who are alive. Children under 23 and husbands and wives, including those who are separated but not divorced, and someone who's financially dependent on the member officially count as dependents. Now remember, the youngest one did a lump sum and the middle child wanted drawdown, now they're both under 23 so that's fine as dependents can be offered a full range of benefits. But the third is 23 and because they aren't a dependent of the member and the other dependents are alive, they can only receive a lump sum, so the choice is limited and that could also mean they pay a lot of tax. Now, we'll have more on tax later, so this doesn't affect who can be paid but how they get it. However, if there's an expression of wish form and all three are named on the form, the full choice is available to them. Now, this is quite complex but we've had a question from Ron that deals with this issue and hopefully should illustrate exactly what we've been describing. And he says that he nominated his wife to receive his pension when he dies, but what happens if she doesn't want the money and instead wants their adult children to receive it? Now, as Clare mentioned, Ron's wife would be a dependent and, if he wants his adult children to have all the options available, if they were to receive his pension, then he should put their names on the form or else they may be limited to only being able to take a lump sum and possibly paying more tax. Now, sometimes you see people put their spouse's name on a form and they'll say they'd like 98% of their pension to go to their husband, wife or civil partner and then, say, 1% for each child if they've got two children. What that's really telling the pension company is, 'I'd like my husband, wife or civil partner to get the money in my pension but, if he or she isn't alive or doesn't need it, then my children's names are on the form so they can access the full range of benefits.' But Clare, I've mentioned tax, you mentioned it earlier, so I think we need to move on to taxation, and we've had many questions, including one from Ken about this.

Clare Moffat: Yes, so this is something else which is, excuse me, which is different depending on whether your pension is a defined benefit pension or a defined contribution pension. Now, if you're receiving a pension from a defined benefit pension, it is taxable and it doesn't matter what age the person who died was. So for example, I'm married to a police officer, if he died before the age of 75, the pension I would receive would be treated the same as any other income and would sit on top of my salary and I would pay income tax as usual. But if you're the beneficiary of someone who is in a defined contribution pension, and if we have a look at slide six, here, then that would mean that they're still saving into their pension-, if they're still saving into their pension, or if they've moved into drawdown, if they die when they're under 75 and it's paid out within two years of their death, then for most people there is no income tax to pay. Now, if something called the lifetime allowance applied then financial advice is really important because the law on this is changing right now.

Sarah Pennells: So, if someone dies and they're 65, you know, if they had a pension of, say, £500,000, that could go to their beneficiaries and they wouldn't pay income tax at all on it.

Clare Moffat: That's right, Sarah. So back to my example, if I died when I was under 75, my husband could take my pension as a lump sum or regular income from drawdown and he wouldn't have any income tax to pay.

Sarah Pennells: The difference between defined benefit and defined contribution sounds a bit unfair but the advantage of a defined benefit pension is, you know, they're payable for the rest of your life and including someone's partner's life in that is a very valuable benefit. One of the advantages, though, of defined contribution pension is that, in 2015, we had the pension freedoms and that changed a lot about how people and their beneficiaries could access a defined contribution pension. Now, Clare, you talked about how someone dies under 75, what if they're aged 75 or over?

Clare Moffat: Well, Kenneth asked about this as he said, 'I'm told my pension pot can be left to my son and daughter free of tax if I die after I'm 75, is that correct?' Now, sadly, the answer to that is no. And again, I think it might be useful to look at the slide again, from age 75 onwards, a beneficiary will pay income tax at the right amount for their income, so that's called your marginal rate. So for example, say the member died with a pension pot of £200,000. If their beneficiary took a regular income from their beneficiaries' drawdown pot of £20,000 a year and their yearly salary was £20,000 then they would be a basic rate taxpayer because the total income in that tax year would be £40,000. But if they wanted to take the whole amount out as a cash lump sum, they'd be taking that full pension value of £200,000, which would mean they would have an income of £220,000 for that year, which would mean some would be taxed at basic rate, some at higher rate and a lot of that money would be taxed additional rate tax of 45%, or 47% in Scotland.

Sarah Pennells: And it works like taking any pension money out. The pension company will take tax off before the beneficiary receives it and you only pay tax if you take money out. So say the beneficiary chose income drawdown but didn't want to take any money out, well, hopefully, that money would grow, but the point is that no income would be paid unless they wanted to take some income out. So if you want to take money out, taking regular income is normally better from an income tax point of view. That's what you're saying, Clare.

Clare Moffat: Yes, but if you do want to take a larger amount out, so say you want to buy a house, then you can take a lump sum out. Now, in that case, even splitting it, so perhaps you would take two lump sums over two tax years, one at the end of the tax year and one at the beginning of the next tax year, well, that would mean that you might pay less tax.

Sarah Pennells: So, so just to recap, it's not the passing on the pension that could mean the beneficiary pays income tax, it's the act of taking money out of that inherited pension that means income tax is deducted. Now, and it's an important point to know about the age 75 change in tax, it's the age of the person who died that's important when we're thinking about beneficiaries drawdown. So, if the first person was to die at the age of 76 then any money taken out would have income tax deducted. But if, if the beneficiary moved it into drawdown and didn't spend it all and then died at the age of 70 and passed it onto their beneficiary, then no income tax would be due.

Clare Moffat: Yes, that's right. Now, we've been talking about what happens if you have a defined contribution pension pot or around drawdown. But of course, what happens if you've got a guaranteed income with your pension? Which some, you know, many people did before pension freedoms were introduced in 2015.

Sarah Pennells: That's right, now if you were married or living with your partner, you have bought what's called a joint life annuity and that's a product that's designed to pay you a guaranteed regular income while you're alive and then, when you die, it's make a regular payment to your husband, wife or partner. Basically, whoever's name is on the annuity aside from your own. And they will get the regular payment when you die. Now, it's normally a percentage of the amount that you received rather than the same amount, but that's something you would have been able to choose when you took out the annuity. And you'd have been able to pick an amount, generally, it's between 10 and 90% of your pension. Now, the higher the amount of pension that you said you wanted your beneficiary to get, then in very general terms, the lower the amount of pension that you would have received. However, a number of factors would've come into play, such as your age and the age of your husband, wife or partner, the beneficiary. As well as your and their health. Now, in this case, the pension-, the beneficiary would have to contact the pension provider and tell them that you died and provide evidence of this, the death certificate in order to get that pension payment. Now, we know that, in the past, a lot of people who were married or in a civil partnership or living with their partner actually bought so-called single life annuities. Now, if you take one of these out, they're only designed to pay out while you're alive. But it doesn't necessarily mean that the payments will stop when you die. Now, that sounds contradictory, but the reason is that there are different types of single life annuity. If you've taken out a straightforward single life annuity, then the payments would stop when you died. But if you've taken out a single life annuity with a guarantee then it's slightly different. These annuities pay out for a set period, a guaranteed period and it's typically something like five or ten years. And that payment carries on whether or not you're alive.

Now, as Clare mentioned, annuities used to be really popular before the pension freedoms were introduced in 2015. But these days, most people who have defined contribution pensions either take lump sums out of it directly or go into income drawdown when they retire. And in that case, as we've been discussing, the money goes straight to your beneficiaries. Well, time for a bit of a change of topic now because we've had a question from Constance, who's a nurse in the NHS and she says she's thinking of leaving the NHS after ten years' service, during which she was a member of the NHS pension scheme and she wonders what that means for her NHS pension scheme death benefits. And we've had quite a few questions about this, haven't we, Clare?

Clare Moffat: Yes, we get asked a lot of questions about public sector pensions and, as we said at the beginning, public sector pensions are defined benefit pensions. Now, with defined benefit pensions, if you die, there will normally be a regular pension which is paid to a surviving husband, wife or partner. Now, this will often be a set percentage of your regular pension and there might be a lump sum paid too.

Sarah Pennells: Now, that sounds quite simple but it is made a bit more complicated if you leave a defined benefit pension like Constance has asked about. Now, in that case, you will still get a pension and family members will still get a pension and possibly a lump sum, but that won't be as generous as if you were still a member of the pension scheme.

Clare Moffat: Yes, and it's not just when people stop working for the public sector, it also could be if they decide to stop paying into the pension but they might still be working for that public sector organisation.

Sarah Pennells: Yes, and there are similarities between all public sector pension schemes but they are not exactly the same. So if you are a member of a defined benefit pension or you were in the past, it's best to check with them. But let's go back to Constance's question and run through the death benefits available for active members. Now that means those who are still in the scheme. Those who are-, who have left the scheme but were previously members, they are known as deferred members and you become a deferred member if you stop working for an employer or if you're still working but have decided not to pay into a pension as we were just explaining. Now, the rules around particular public sector pensions have been updated over the years, but all NHS pension scheme members are now in what's called the 2015 scheme. So it will focus on that. It would get far too confusing if I tried to give details of all the older versions of the scheme, so Clare, can you just talk us through how that works?

Clare Moffat: Of course. So let's start with the lump sum death benefit. So if someone is an active member, so they haven't left the NHS or chosen to leave the pension scheme but are still working, their beneficiaries will get two times their pay as a lump sum. But deferred members will get 2.025 times the pension built up as a lump sum paid to beneficiaries.

Sarah Pennells: So, they're getting a slightly higher percentage but it's based on the pension they built up so far and not their pay. So, I think an example would work best here. So, say Constance had a salary of £40,000 a year and has built up a pension worth £8,000 a year at the date she dies. If she's still an active member, then Constance's family would get £80,000. That's two times her £40,000 salary. But if she's a deferred member, they would get £16,200, that's 2.025 times the pension she's built up so far, which we said is worth £8,000 a year. So that's a huge difference. Now, in addition to that, beneficiaries of active scheme members also get something called a short-term pension, which is around six months' pay and that's to help with the costs of bereavement. But that's not the case for deferred members. But Clare, what about the pension that her husband, wife or partner might get?

Clare Moffat: Well, the first thing to note is that the person has to have been a member of the pension scheme for two years. Now, if they have, their husband, wife or partner will receive a pension for the rest of their life. Now, this is about a third of the benefits the member's built up. So, say the member has built up £27,000 of pension benefits a year, their husband or wife would get £9,000. And that's for beneficiaries of active and deferred members, but there is an extra part which is paid on top of that only if someone dies as an active member. Now, how much depends on how long it is to go until the member State Pension age. But it is 50%, or half, of the number of years. So if an active member has twenty years until their State Pension when they die, their partner will get that third that I mentioned, the £9,000 in the example I used, plus an additional ten years of benefits. Now, remember that's paid for life and it increases each year by the consumer prices index. Now, that can be quite a difference, particularly for younger pension scheme members. Now, there's also something called dependent children's pensions and similar rules apply. And it's also really important for people in defined benefit schemes to fill in their nomination forms or expression of wish forms too. But Sarah, I think we've covered a lot about pensions, but what about wills?

Sarah Pennells: Yes, before I talk about wills, I'd just like us to do a poll, so if you can use the Slido link and vote, please, the question is have you made a will? Okay, so it's interesting, it's a bit of a, sort of, battle going between people who are saying, 'Yes, it's up-to-date,' and those who are saying they put it off. About one in four saying yes, they have a will but need to update it. At the moment, four in ten saying it's up-to-date and about 35% saying, 'No, I keep putting it off.' And I think, I think all these responses, actually, are understandable. I think it is particularly understandable about people putting it off, it is one of those things which I will be talking about in a moment. Now, the main reason for having a will is to set out how your money and possessions, which you might hear being described as your estate, is divided up when you die. Now, if you die without a will, that's called dying intestate and, if you do that, then the money and possessions that you have will be distributed according to the rules of intestacy and that could be very different to your wishes. So, first of all, apologies for the legal jargon but it, kind of, goes with the territory. But, for example, if you live with your partner but you're not married, or if you have stepchildren who haven't been legally adopted or foster children, they don't have an automatic right to inherit under intestacy rules. So, you could have a situation where a couple have been living together for twenty years, they've both been paying towards the house and the household bills, but the house has been owned by one person. Now, if they die without a will, that house will go to the closest family member of the person who owned it. Now, that could be children or parents or, if they didn't have children or parents weren't alive, it could be a more distant relative. You, as the surviving partner, would have no automatic right to inherit. Now, you might be able to take legal action for a share of the house, but there's no guarantee that you'll get anything, especially if there are children.

Clare Moffat: And Sarah, legal action is the last thing you'd want after the death of a loved one.

Sarah Pennells: Absolutely, I mean, as you say, it's the last thing you want to face. Now, a will means that your estate goes where you want it to and, when you draw up a will, you can also say who you would like to act as your executors and these are the people who ensure that the instructions in your will are carried out when you die. There are several other things you can do if you have a will. You can say who you would like to act as guardians of your children, any children you have, if, for example, both parents were to die at the same time, and if they're under the age of eighteen, it's sixteen in Scotland. Now, if you don't do this, the state will decide who has responsibility for your children. If you have any pets, you can also say what you'd like to happen to them when you have a will. Now, I mentioned about a third of people saying they put off drawing up a will and how understandable that is and I know too, all too well how easy it is to put off drawing up a will. I mean, I was a financial journalist for many years before I joined Royal London and I talked about and wrote about the importance of having a will. But even I put it off for a few years. Now, I have had a will for many years but I know I could've probably sorted it out a few years earlier. I have to be honest and say it was only when my parents died a few years ago that I think I really understood first-hand how important it was to have a will. Sorting out the financial affairs of a parent who's died is really tough, but both my parents had a will and they told me and my sister about it and, in fact, they'd given both my sister and myself a copy of it. So when I was sorting out probate for them, I did know that I was carrying out their wishes and that did make things easier for both of us. I think one of the benefits, as I mentioned earlier on, of having a will, is that you can decide who gets what and set out, you know, what happens to your business, pets and so on. But I believe that having a will is also an act of kindness for those people you leave behind.

Clare Moffat: Sometimes people don't want to think about what would happen if they died or perhaps their circumstances are complex, but taking that time to plan will really help your family.

Sarah Pennells: Yep, that's absolutely right. And I think that's especially the case as, you know, families are more complex than they were a few years ago. Now, I've talked about, you know, drawing up a will, but the law varies around the UK, doesn't it, Clare?

Clare Moffat: That's right. So, the law in England and Wales, then Scotland and then Northern Ireland, well, in relation to writing wills and intestacy, it's quite different. So, you need to make sure that any will that you write is correct for where you live. So, for example, I live in Scotland, so if I went to the shop and bought a ready-made will and it was based on English law then there could be problems. In addition, in Scotland, even if you have a will you can't actually write your children or spouse out of it. So, say I said I wanted to give everything I own to a friend, the law here says that my husband and children would still be entitled to something. And if you have any assets abroad, like a house in Spain, for example, you would need to check out the situation in that country. And inheritance tax, Sarah, tell us about that.

Sarah Pennells: Yeah, now, inheritance tax is a potential issue. So, if that's the case for you, you can also use your will to set up trusts and other arrangements to keep inheritance tax to a minimum. Now, more and more inheritance tax is being paid, and one of the reasons is because of the rise in property values. Now, we all have something called a nil rate band, which is worth £325,000, and that means that if the money in property that you leave behind is worth less than £325,000 then there's no inheritance tax to pay when you die. Now, there's also something called the residence nil rate band, and that's worth £175,000 and that means if you own your own home and you want to pass it to your child, or children or grandchild then you get an extra allowance of £175,000. Now, that kicks in even, perhaps, if your house was sold to pay for care, care home fees as well, it still applies.

Clare Moffat: So, Sarah, you've mentioned that there could be £325,000 plus that £175,000, potentially, so that's before inheritance tax would be paid, but tell us about this magic million-pound figure that we hear about.

Sarah Pennells: Yeah, as you say, I just mentioned the two inheritance tax allowances, but if a couple are married or in a civil partnership and the first person to die leaves everything to their husband, wife or civil partner, then there's no inheritance tax to pay anyway as there's what's called a spousal exemption. Now, the rules say husbands, wives and civil partners can leave as much of their assets and property to each other as they like and there is no inheritance tax to pay. Now, instead, their nil rate bands, that £325,000 I mentioned, will be transferred, which means that when the second partner dies, there can be the total of £1 million before inheritance tax is paid. There's the £325,000 that each get plus that residence nil rate band if they own their own home and have children or grandchildren. Now, but if you live with a partner, and you're not married and you die first then you don't get that spousal exemption, so there may be inheritance tax to pay if the total value of the estate, the money and possessions you leave, is worth more than £325,000.

Clare Moffat: And that's back to what you were speaking about earlier, for people who live together and aren't married, then they need to understand that there are differences in the law.

Sarah Pennells: Yeah, now, we mentioned at the beginning, which might feel like quite a long time ago, that your pension isn't normally covered by your will but your house or flat may be, and if you own it in your name only you should definitely state in your will what you would like to happen to it. If you own it with somebody else such as your husband, wife, partner or friend, then it may or may not be covered in your will, it depends on how the ownership was drawn up when you bought the house. So, typically, if you're married you might own your home as something called joint tenants, and in that case, your share of the house will automatically pass to your husband or wife if you were to die. It wouldn't matter if you had a will or if your will said something different. If you owned it jointly in a different way, that wouldn't be the case. Now, in Scotland, the principle is the same, but the terminology is different. So, Clare, having a will is a good idea for most people, but how do you actually go about getting one?

Clare Moffat: Well, you don't have to use a solicitor or a professional will writer to draw up a will, but many people do. Now, you'll normally have to pay a minimum of about £150 to get a solicitor to draw up a simple will for one person, but it could be more than that if your situation is very complicated if there are two of you. Now, often there are free wills months and solicitors who will draft a will for a donation to a charity or other ways of reducing the costs, so it's definitely worth watching out for these. Now, we've got a guide to making a will on our website and it includes how to get one made, and we've also got a guide to what you can put in your will.

Sarah Pennells: And as I mentioned earlier on, we'll include those links when we send out the recording to this webinar to everyone who's registered. So, just before we, we finish, we've mentioned you can put details into your will to make things easier for your loved ones, but it's also to have details about lots of other things in one place. So, we have a document which is called, 'When I'm Gone,' and this basically goes through the kind of information that might be important to set out for your family, and you could just put all this information in one document.

Clare Moffat: Yes, Sarah, and I think this is a great idea. So, in my house I do all the financial stuff and I realised that my husband would have to search for paperwork if I died, I know where it all is but he doesn't. So, we both filled in these forms, it's got names and phone numbers for our pensions, life insurance, banks and so on, so that if the worse happened it just makes one admin job a bit easier. Now, it's also got space for things like funeral wishes. Now, you can put this in your will but things change and, and in mine, I put things like songs I would want because they mean something to me, but in a few years' time I might change my mind about that. Now, we've covered a lot in the last 40 minutes or so, but we do have time for a few questions now, but before we go we have one last poll, which is for what topic would you like us to cover in the next webinar?

Sarah Pennells: Okay, so please vote using the Slido link, as normal. Okay, so this is kind of-, this is one that's a fast moving poll, we're getting some-, I, I, I'll, I'll come back to it right at the end just before we leave because it's taking a bit of time to settle down, but I think we'll take a couple of questions now. The first one is from Alexandra and, I think, Clare, you've covered this but it's really good to reiterate it. So, what if I don't have a husband, wife or civil partner? What does that mean, then, for her pension?

Clare Moffat: Yes, so again, it's-, you know, we mentioned that there are some very old styles of pensions around where they're not quite as flexible, so it's worth checking that first of all. But now most pension schemes are quite flexible and it means you can have whoever you would like as a beneficiary. You know, they've got to be a person or a company, so a charity or a trust. I have once seen somebody try and leave their pension death benefits to a parrot and that can't happen, you can leave money to someone to look after your parrot but it's got to be a living individual or a company, but there's no other rules about who it can be, it can be friends, family, anybody.

Sarah Pennells: Yep. As you say, you can't actually leave money directly to your pets, they're, they're counted as chattels, weirdly. But I know somebody who apparently wants to leave some money to her ten hens, but there we go, that didn't happen. Anyway, another question which is from Paul, saying, 'What happens if I'm in drawdown and I die? Does my wife inherit the remaining policy free of tax?'

Clare Moffat: Well, I think that's back to that question of it, it depends how old Paul is when he dies, so-, and also the fact that his wife can choose what to do with it. So, if Paul is under 75 and his wife receives the pension death benefits she can choose to take that money out, all of it out, she can take it as a cash lump sum, she can move it into drawdown and she can take a regular income or some money one year and not any money for a few years, or not take any money out. But it's really, you know, important about the age that he dies. So, if he's under 75 then that money will be income tax free, if he's over 75 then his wife would pay income tax for any money that came out of the pension. So, if she didn't take money actually out, then there wouldn't be any income tax to pay, but if she did take money out and he died at over-, 75 or over then there would be income tax to pay.

Sarah Pennells: And, as you say, really good to reiterate both that age but also that it's the, the act of taking money out that triggers the income tax, not the act of having the money passed on. So, a question now from Graham, saying, 'Will my private pension automatically become part of my estate on my death or do I have to make special arrangements?' Well, in most cases, I mean, it's not really going to be part of the estate but, as we said at the beginning, the pension sits outside of the estate. Anything you want to add to that, Clare?

Clare Moffat: No, just, you know, as we said, for most pensions that's how they're set up, they're set up under discretion so they're not part of the estate. Just there are some pensions which are part of the estate, so again, it's kind of one to check, but in most situations, pensions would not be part of your estate on death. So, you can have your will and say in your will you left everything to your wife, you could have your pension leaving everything to your children, for example, so, you know, it can be different, they can be the same.

Sarah Pennells: Yep. And there's sort of a, a related question from Annette, saying, 'If I die would my beneficiary get everything left in my private pension pot?' And I noticed you said beneficiary and, I mean, you don't need to leave your money, your pension to one person, do you? You can split it between two, three, four if you want to?

Clare Moffat: Yeah, that's right, you know, as I mentioned, mine's split between four people. And part of that's because, you know, my-, if I died now, I think I'm quite young, I would want my husband to remarry but I would quite like my children to keep a hold of some of my pension money because he might remarry and then if he died first then maybe his new spouse would get some of the money that he had. So, it's about, kind of, thinking longer term what you would like to happen as well. If, you know, this was in, kind of, 30 years' time maybe the chances of him remarrying again would be less. So, so it's worth thinking about things like that as well, so who would I like to receive my money, what might happen? What age am I? There's lots of different things to think about, but splitting it up amongst various beneficiaries is really common now.

Sarah Pennells: And we're saying that, you know, it obviously doesn't have to be a husband, or wife or child that you leave your pension to, but we've got a question here from Robin, saying, 'I would like to leave my pension to my grandson who is eleven years old, anything to be aware of?' So, what could Robin-, what should Robin think about?

Clare Moffat: So, that can be excellent planning because perhaps other assets under the will are going to different people and, you know, as we mentioned, if you-, you can leave it to whoever you want. We don't know how old Robin is, if Robin's over 75 then perhaps if you're leaving it to a grandchild then money can be taken out. Now, there would be financial advice given on their behalf as well, so say they were moved into drawdown, perhaps the money could be taken out to pay for things like school fees or, you know, when they turn eighteen, they might use some for university funding. Now, of course, just be aware that, you know, when people do reach the age of eighteen, then it's up to them what they do with the money and they could take all of the money out and spend it on whatever they wanted. But that's back to that situation over you can say who you would like to receive the benefits on your death but it's up to them to choose what happens with them, and as soon as they hit eighteen, or sixteen in Scotland, then it's their choice of how they take that money out.

Sarah Pennells: Okay, so we've had a question from Silvia, which is saying, 'If I don't have a partner or husband then can my nearest relative inherit, for example, my sister or niece, can they inherit my protected pension?' Now, that's-, I started off the webinar talking about your State Pension and what happens to your State Pension when you die and the elements of that that your husband, wife or civil partner may be able to inherit, depending on the age that you reach State Pension age. Now, sadly, it's not the case that you can pass this on to another relative, it's, it's your husband, wife or civil partner who can inherit, it's not the case that other family members can inherit. But obviously, as we've been discussing, with other pensions then, then you can decide who the beneficiary is. Clare, anything you want to add to that?

Clare Moffat: No, I think that deals with everything.

Sarah Pennells: Okay. So, we've got a question now from Lily, who says, 'I'm just about to get married. Do I need to tell my pension provider for the death benefits?' I think the short answer is yes, but you'll probably want to-,

Clare Moffat: Well, I think that, that depends.

Sarah Pennells: You might want to expand on that, yes.

Clare Moffat: Well, because it could be that Lily has lived with her partner for a number of years, so they might already be on the expression of wish forms. So, if she has already, you know, written their name down on that form or put them on the app, then the same, you know, nothing's really changed. But if Lily hasn't had that person as one of her beneficiaries and she wants to have them as a beneficiary, then it's a good idea to have a look at the form. And sometimes it's just a good idea to fill in a new form or update the app even if it's the same information you're putting, because if a significant event has happened it's sometimes just, kind of, making that point and showing that this is a recent update. Because it could be that Lily doesn't want her new husband to receive any of the death benefits, so, you know, it's kind of worth having an update to that. And even sometimes, you know, just kind of writing a bit of a story on the form or, or however you do it, to explain to the provider what you would like to happen.

Sarah Pennells: Okay. We've got a, a-, we've got quite a few more questions but I'll try and whizz through a couple of them in the next, sort of, six or seven minutes. So, here's a question from Shaun, 'In the scenario whereby you and your partner (100% beneficiary) were to die in the same accident and you have no children, who receives your defined contribution pension on death?' And Clare, I think you covered it but it's always good to, kind of, go over this, you know, just to emphasise it again. So, what's the answer there?

Clare Moffat: So, it might be worth thinking about who you might want to receive benefits in the event that your partner's no longer there. So, you've said that-, Shaun said that they're a 100% beneficiary, it might be if there are nieces, nephews, friends, other people you might want to receive, you could put-, do you remember we, we spoke about the fact that you could have someone as, kind of, 98%, 1%, 1%, so you could have instead of 100% beneficiary being the partner you could have them as 98% beneficiary and then 1%, perhaps, for a friend and 1% for a niece or nephew. Now, again, what that's telling the company is that if the partner is alive, then you do want them to receive the benefits, but if the partner isn't alive, it means that those other beneficiaries-, well, first of all, you're giving some names of other people but it's also giving, you know, them the choice of all of the benefits you would want. So, it might be worth thinking about who else you might want to benefit if your partner was no longer alive or actually didn't want the benefits.

Sarah Pennells: Okay, so we've got a question here, a, a tax question from Kenneth, 'How do I leave my pension pot to my children without having to pay tax on what they receive?' And again, really useful to go over it-, go over again and that age 75 cut-off.

Clare Moffat: So, the rule is in relation to age and it is very clear that if you die when you're under 75 and it's a defined contribution pension scheme-, because remember, if it's a defined benefit then there will be income tax paid even if it's under 75, but defined contribution then there'll be no income tax payable. If you die when you're 75 or older then there will be income tax payable. Now, the way that they wouldn't pay income tax even if you died when you're over 75 is if they don't take any money out of the pot, or they could make sure that they take it within their personal allowance or, you know, they stay a basic rate taxpayer. So, again it's really crucial at these points, especially with larger pots, to take financial advice, but the, the rules on income tax are very specific about-, it's about age, so it's from 75 onwards that income tax would be payable when you take money out of that pension pot.

Sarah Pennells: Okay. I think we'll have one more question, maybe, before we draw to a close. And this is from Adam, who says, 'Why would my pension be subject to inheritance tax if I chose direction instead of discretion on my nomination of beneficiaries?'

Clare Moffat: Now, it's to do with the fact that you are directly saying what's going to happen with that money, so it's just the same as if I said what was going to happen to a house, that would, you know, be subject to inheritance tax. If the pension company's making the final decision, it's breaking a chain, effectively. So, what they're doing is, although there's an expression of wish form from you saying what might happen or what you would like to happen, the company makes the final decision and that takes it out of the realm of inheritance tax. So, it's all about, kind of breaking that chain, almost, and just it's not going to be like any other asset that would be under your will which then could be subject to inheritance tax.

Sarah Pennells: Great stuff. Well, thank you very much, Clare, and thank you very much for all the questions that you submitted. I'd just like to go back to the poll before we close the webinar, so again, thanks to everybody who voted in the poll, I really appreciate it. So, the topic that's come out on top is pension options at retirement and on ill health, with 44%, financial advisors, what they do and how to find them was the next most popular, and then making contributions to my pension, and then finally marriage, divorce and pensions. So, we'll definitely use that to inform the pensions that we do-, the webinars that we do, sorry, later on this year. So, thank you very much indeed for joining us, thank you, Clare, I'm glad your voice managed to hold. That is all that we have time for. Thank you again for all the questions that you submitted in advance and the ones that we received during the webinar. Now, as I mentioned a couple of times during the webinar, we will be sharing a link with the recording of the webinar in the next few days. And that will also include links to the gov.uk website that I mentioned and also to the wills articles on rl.com, and that 'When I'm gone' document that both Clare and I spoke about. So, look out for that link but, in the meantime, a huge thank you for joining us today and for taking part in the polls and submitting questions. Thanks very much.

Clare Moffat: Hi, I'm Clare Moffat and I'm Royal London's Pension and Legal Expert.

Sarah Pennells: And I'm Sarah Pennells and I'm the Consumer Finance Specialist here at Royal London. And in today's webinar we're going to be talking about how to make the most of your pension. So we'll start with a quick recap of the basics of what a pension is. We'll talk about how much to save in your pension and importantly how your pension can save you tax. Now, we had a staggering 546 questions submitted ahead of this webinar so, first of all, a huge thank you if you did submit a question. But obviously we're not going to be able to answer all of them in the next 45 minutes or so. Now, Clare and I would like nothing better than to talk about pensions non-stop for two days, but you may have other things to do.

Now we have read every question, and what we're going to do is answer some of the most popular questions in this webinar, but we would still like you to submit some questions and I can see some of you already have been. We have left some time at the end to answer questions that come in. As with all of our webinars, though, we can't answer your specific circumstances and we can't talk about a Royal London policy. So if you have a comment or a question, please make it using the Slido app or link now. One more announcement to make which is that a reminder that we are recording this webinar and we will be sharing a link to the recording with everybody who registered in the next day or so.

So let's start with the basics, Clare, let's get on with it. What is a pension? And by that I mean what makes something a pension rather than a different kind of savings or investment plan?

Clare Moffat: Well, it's a really good question. The purpose of a pension is to provide money when you've stopped working or perhaps before this, but you must be 55 or over currently to be able to take out any money from your pension. Now that age is rising to 57 by April 2028. Now a pension is different to other types of savings or investments plans because of the way it's taxed. Now we'll be talking about how pensions can save you tax later on, but in broad terms the government gives you a tax top up on the money you save into your pension, and you're allowed to take out some money tax free. Now under the rules you can only take money out of your pension before the age of 55 in very limited circumstances. So normally if you're very ill or perhaps in certain specified jobs where you are allowed to retire early.

And it's those rules that make a pension different from something like, for example, a stocks and shares ISA.

Sarah Pennells: So that's what a pension is but I suppose we should explain about the two different types of pension as well.

Clare Moffat: Yes, you might have heard the words, 'Defined benefit.' Now that's the type of pension that makes a promise to pay you a regular payment for the rest of your life. Now that would start when you stop working. A final salary pension is one type of defined benefit pension but there are other types as well. You might have heard of, 'Career average,' as well. Now if you retire and you have a defined benefit pension, well it's almost like carrying on getting your monthly salary, except you'll get less, of course. And you can take some tax-free cash too. Also, if you have a husband or a wife who is alive longer than you, then that payment will normally carry on for their lives too. Now these days you're more likely to see defined benefit pensions in the public sector, although lots of people have some definite benefit pensions from the past.

The second type of pension is called a defined contribution pension. So that's the type of pension that pension providers offer to you individually or through your job. Now these are pensions where you build up a pot of money and then you use that money to give you an income to live on when you retire but you can take out some money before you stop working if you want to.

Sarah Pennells: Now you may have noticed that we haven't mentioned the State Pension and there's a very good reason for that. That's because in our last webinar in December we spent almost an hour talking about and answering your questions on the State Pension so there's a link to that webinar on this page. Now before we go any further I think it's time for our first poll. So, what we'd like to do is ask about the type of pension or pensions that you have. Whether you've got defined benefit pension or pensions, defined contribution, a mix, or you're not sure. So please vote using Slido.

Okay so at the moment, Clare, 'Not sure,' is actually the most popular answer, so 36-, it's changing as I'm speaking but 36, 35% saying not sure. About a similar number, 32% is saying defined contribution and about 27% saying both. Only 4% defined benefits so-, I mean I think it's interesting that so many people aren't quite sure what kind of pension or pensions they have. Maybe not that surprising because many people may have had pensions over a number of years and may not have actually checked for a while.

Clare Moffat: And that's right, especially if you've left an employer. You might remember who you've worked for, you probably will remember who you've worked for, but you might not remember the type of pension scheme that you had and it's probably only as you get closer to retirement you think about that a little bit more. And, you know, we will still see people that do have a mixture of both. In years to come that won't be as common, but you know, it is more common now. Now of course the reason we asked this question, well it's because we are going be mainly focused on defined contribution pensions and some of the key features in relation to them, rather than defined benefits. One of the key features with a defined contribution pension is that you're in control of how your pension contributions are invested. But there's a lot of confusion about what exactly happens to your pension money and it's something we had a lot of questions about.

Sarah Pennells: Yes, we absolutely did. Including this question from Philip, who says he's just joined his employers pension scheme and how does he find out where his money is invested? Now we will answer your question, Philip, but I think before we do that we'll do a quick explainer of what happens to your pension money. So, the money that you pay into your pension and money that comes from your employer into your pension, if you're in a workplace pension scheme, together with the government tax top up of tax relief, that's all invested, all invested into-, in funds. And these funds in turn invest in different assets. So they may buy the shares of a range of companies for example, or they may buy company bonds which effectively means loaning the company's money. Or government bonds if they're buying them from the UK government, they're called gilts. Or other assets including things like commercial property. If you're in a workplace pension-, and this is a really important point, unless you actively decide where your pension money is invested, then it will be put into something that is called the default fund.

Clare Moffat: Yes, the make up of these default funds-, well it varies from one pension scheme to another. But the idea is that it meets the needs of most of the members of the workplace pension scheme. Now the vast majority of workplace pension scheme members have their money invested in the default fund. So if you're happy to have your money there then you don't need to do anything at all. But you don't have to keep your money in the default fund.

Sarah Pennells: No, that's absolutely right. So, you can switch money that's in your pension to other funds within your workplace pension if you prefer and you can choose those funds. So that's something that you can do yourself and switch some or all of your money. Now if you want to switch funds within your workplace pension, then you won't normally be charged if you're doing this. I think it's really important, though, to think about if you want to switch your pension money, about the risk that you might be taking in terms of the funds that you might want to move your money too, compared to the risk that might be associated with where your money is at the moment. And I think that risk is one of those things that-, it can be quite tricky to talk about when we're thinking about it in relation to money. How much risk someone might be comfortable taking.

Now the idea behind taking more risk, putting your money into a riskier fund, is that you have the potential for higher growth, but you do also have the risk that there's a higher chance that your pension will lose money as well. So, there's that thing around the comfort level that you have about the risk that fund or funds might be taking, but it's also important to think about how far away you are from retirement when you might want to access your money. Because that could also affect the amount of risk that you're actually able to take. And this is why it's an important decision and it's a really good idea to talk to a financial adviser, this is something they can really help you to think through and talk through. Now we do know that not everybody has a financial adviser so we've got an article on our website about how to find a financial adviser. It talks about the, kind of, different questions you might need to ask or think about in your own mind and also some adviser directories.

We've also got information on our websites about pensions and investment funds, but there's also an article on the MoneyHelper website which is government backed website about pensions and investment funds and the address of that website moneyhelper.org.uk

Clare Moffat: Philip wanted to know how he could find out where his money is invested, so what's the answer?

Sarah Pennells: Well, there are three different ways that you can find out where your pension money is invested. So, first of all your annual pension statement so, you know, the statements get sent once a year as the name implies, and they have information about how much you've paid into your pension, how much your pension is worth but also where it's invested, the different fund or funds that your pension money is invested in. So that's a good place to look. Now if your pension provider has an app then they may list the funds that your pension money is invested in and that can be really hand if you're the kind of person who wants to check on your pension you can do it, obviously, whenever you want to. But also if your pension has an online portal then you can login there and, again, as well as your contribution details, it will have information about the investment funds that your pension money is in.

Right time for another poll, I think. So, this time-, we've asked you about the kind of pension or pensions that you may have, this time we'd like you to tell us whether you know how much you're saving into your pension each month. So please vote now.

Okay this is really interesting, so we're getting at the moment about half and half of people saying they know to the penny, and people who are saying they have a rough idea. About one in ten, nine percent, are currently saying, 'Not a clue,' and about five percent are saying they're not currently saving into a pension. Is this what you expected, Clare? What do you take from these results?

Clare Moffat: Yes, because I think some people will know the fixed amount that's going in, but some people might-, it's a-, it might be a percentage. So, and especially if you've got, kind of, fluctuating salary, perhaps. You know, different salary every month then there could be a different amount going into your pension every month, but it's really encouraging to see that people-, you know, a lot of people do have a rough idea as well as people, kind of, know to the penny as well. And you know, as you say it's really interesting because even if you do know exactly how much you're saving into your pension every month, you might not know whether that's enough for retirement. And that's something we had a lot of questions about, including one from Anthony who asked how much he should be paying into his pension so that he has enough to live on. Now Sarah, we know money is really tight for a lot of people at the moment, so how much should people aim to pay into their pension?

Sarah Pennells: It's a really good question from Anthony, and as you said, we had some others who also submitted a very similar question, so thanks for that. And there isn't an answer, unfortunately, in a way, of one, sort of, single figure of, 'This many pounds a month.' I think if you are thinking about how much to save into your pension, then it is really helpful to think about your end destination. So, in this case, think about retirement, think about the kind of life that you'd live in retirement and really think about it in some detail. So how will you spend your time when you're not working, or when you're not working so much? Are you the kind of person who wants to travel a lot? Do you want to travel to far flung places? Or are you somebody, 'That just isn't important to you'? Do you want to take up some new and possibly expensive hobbies, or are you happy with your existing possibly expensive, possibly not, have-, hobbies? How do you imagine spending your time? A really big important expense is your mortgage or rent.

Will you still have a mortgage when you retire? If so, what's that likely to be? How many years will you have that for? If you're renting, likewise. Is your rent going to be similar to now? Could it be less? Is it going to be more? Even if you don't have a mortgage, if you're going to be retiring and your mortgage will be fully paid off, is your home the kind of property that could be a money pit in terms of repairs and improvements. Or even if it's not the case, are you the kind of person who likes to redecorate regularly and spend money on your property or does that really leave you cold?

The next stage is to think about when you retire. And again, I think it can be helpful to shift how you think about stopping work, because I talk to lots of people who say, 'You know, I really love my job, I don't really want to retire until I'm in my late 60s, even 70s.' But sadly not everybody is going to be able to carry on working until their late 60s or 70s, even if they want to. And retirement isn't just about, 'This is the life you have after you decide that you have to stop work,' retirement enables you to have a life without having to work to pay the bills. You can stop work if you want to, or you can carry on working, it's up to you. But what retirement enables you to do, is to not have to work to pay those bills.

Clare Moffat: So, what about those people who love numbers? Should they start somewhere else?

Sarah Pennells: Yes, that's a really good point. And in that case I think the starting point is to look at what you'd have to live on if you didn't have any pension at all. So that's going to be the State Pension and once you know what the State Pension will pay you, then I think you can work out whether that's enough to give you the kind of life you'd like in retirement or whether you're going to have to have more into your pension to give you a good standard of living in retirement. So, let's talk about the new State Pension. That is currently £9,660 a year, per person if you have a full National Insurance record. And that's gonna rise to £10,636 from April the 6th. Now, that works out at £805 a month, currently, or £886 a month from April. Now, if you joined the State Pension webinar, you will know that I tried to live on the State Pension for a week last year, along with some of our customers. I took the State Pension challenge. And I have to be honest and say I didn't find it easy. Apart from having to watch my spending even more closely than I currently do, I realised that there was just no stack in the system, certainly for me, and that was quite stressful.

And I did the challenge in summer, when I didn't have the same, kind of, you know, heating and winter bills that we're all facing at the moment. But even if you are happy to live on the State Pension amount on its own, or largely on its own, then there's a question about whether you're happy to wait until the earliest age at which you can get your State Pension before you stop work. So, currently, the State Pension age is 66. So, that's when you can get your State Pension. But it's rising to 67 and is, by 2028, and is due to rise to 68 later on. So, the two questions that follow up from that, how much more do you want to have saved in the State Pension amount? And how much earlier do you want to retire than the State Pension age, and when you're allowed to claim your State Pension?

Clare Moffat: And should people be focusing on the age they want to retire or the type of lifestyle that they'd like to live?

Sarah Pennells: Well, I, I'd personally say both. I mean, I think if, if you're the kind of person who wants to have a really comfortable lifestyle, you know, you want to travel a lot, you want to eat out, you want to, maybe, leave money for your children or grandchildren, then that's going to have a really big impact on how much you need to save for your retirement, compared to somebody who doesn't have those, doesn't really want to live like that. But, obviously, it will also be affected by when you want to retire. You know, whether you want to retire at 55 or at State Pension age. Obviously, as I mentioned, one of the biggest expenses is going to be your mortgage or rent. So, that's going to be a, a huge one to factor in. So, I think it's maybe time for another poll, Clare.

Clare Moffat: Yes. We've been talking about how to think about what you might need in retirement. So, let's think about that in a little bit more detail. So, if you were thinking about your life and retirement now, which of these is the closest to how you imagine it? Now, obviously, everyone's got very different ideas, but try and pick an answer that's closest to what you think a good retirement looks like. Okay. So, lots of people want three weeks' holiday in Europe and replacing their car every five years. So, I'm not surprised by that. Are you, Sarah?

Sarah Pennells: No. I think we've-, this is a really interesting one because I think when you ask people to think about their retirement and you give them a choice, which is, kind of, basically, not being able to spend so much money on food, not being able to spend so much money on clothes, on, on birthday presents, on, you know, whatever it is, and, and not much on holidays or transport, not surprisingly, people do go for the more, sort of, comfortable end, in terms of retirement. But, yes, so it's settled on 50% at the moment saying, you know, basically, 'I'd like this three weeks' holiday in Europe and replacing my car.' About four in ten, though, are saying, 'Actually, I'd be quite happy with two weeks' holiday in Europe and I'm not so bothered about replacing my car that frequently.'

Only 4%, so fewer than one in twenty are saying, 'No car and holidaying in the UK.' And it's-, the reason we ask this is that there's a really useful website called retirementlivingstandards.org.uk which we've added the link to, and that website will really tell you how much you need, as an annual income, depending on the kind of-, kind of retirement that you'd like. So, it's based on independent research, and if you go to the website you'll see, next to each different income level, what that will buy you. And I think it's important to say that the numbers on the retirement living standards presume, first of all, that you don't have any housing expenses at all.

So, no mortgage or rent. And they presume that any money you have from your pension is, has been, the tax has been paid, and any money that's coming out of your pension. Now, if you're happy with what they call a minimum lifestyle standard of living, and we found that only 4% of people in our poll were, but if you live on your own, then you'll need £12,800 a year. And to give you a bit more of an idea of what that includes, you'll be able to have a weekend and weeks' break in the UK every year. Spend about £54 a week on food, and up to £60 a month on clothes and shoes. But as we've said in the poll, you wouldn't be able to run a car.

Now, for a moderate lifestyle, you'll need an income of £23,300 a year for a single person. For that, you'd spend a bit more on food. £74 a week. £65 a month on clothes and shoes. Go on holiday to Europe for two weeks of the year. And if you want the comfortable lifestyle, and we've found that about half of you said, 'Yes, please.' Then you'd need an income of £37,300 a year for a single person. And, as well as the car that we mentioned, three weeks' holiday in Europe, but also, you can afford, as well as spending more money on things like food, and clothes, and birthday presents, you'd be able to replace your kitchen or bathroom in your home every ten or fifteen years.

Now, I do think this is one thing that's really, really good about the retirement living standards website because you can just go through and look at, actually, what you'd like. And they're very, sort of, tangible examples. And I think it really does help to bring to life what retirement at different income levels could look like.

Clare Moffat: And if you're part of a couple, those figures rise, but they don't double. And that's because it's cheaper for two people living together than for two people living on their own. So, for a moderate lifestyle, instead of £23,300 pounds a year, you'd need £34,000 for a couple. And you can see on screen there the number for minimum and comfortable too. Now, you might be wondering how much you need to save to get to those amounts, and, and that depends on a lot of factors. There's a really handy pension calculator on the MoneyHelper website that Sarah mentioned earlier. And it looks at, for income retirement, but then looks at your salary now, pension contributions that you're making, your employer's making, what your State Pension age will be. And it works out if you'd have a shortfall.

So, you plug in the numbers. You'd like to retire at 65, for example, and it helps you, kind of, work out if that's achievable or what you would need to do to help that. But Sarah, we know that some people are really struggling with the cost of living, so they might be thinking about stopping or reducing their pension contributions. So, so, what should they think about?

Sarah Pennells: Well, you know, you might expect someone from a pension company to say, 'Don't think about stopping or reducing your pension contributions.' And, on one level, that, sort of, is what I'm going to say and, and the reason is that I think the first reason is that we know most people don't save enough money for their retirement. Now, that's not a judgement. That's just what the research shows us. So, they don't save enough for the, kind of, you know, a good standard of living when they stop work. The second reason, though, is that if you're employed, then you're in a work, and you're in a workplace pension, then, that means you'll be giving up your employers' contributions into your pension.

But also, tax relief, the tax top-up from the government as well. Now, we know that some employers, quite a number of them, won't just contribute on a, kind of, standard level or basis. They will do something that's called matching or matched contributions. And this means if you want to pay more into your pension, they will match the, the money that you pay in. Now, obviously, I'm very aware we're in the middle of a cost of living crisis, and we know that millions of people are really struggling with day-to-day bills. So, this may be not the time you're thinking of paying more money into your pension. But it is worth checking with your employer for, you know, when those bills do start to come down and you may find that you have some spare money because, as I've said, they well match your contributions.

Now, if you are struggling to pay your household bills, then it definitely could make sense to reduce or pause your pension contributions. I did mention, there, that one of the reasons not to stop paying into your pension is the employer contributions but also the tax relief. And we got a lot of questions about tax relief, including ones from Laura and Richard and they want to know, 'What is tax relief? How does it work?' So, Clare, what's the answer in more detail?

Clare Moffat: Okay. So, let's have a look on screen about how, how tax relief works. Now, it's worth seeing, at the outset, that the principle of tax relief is the same across different types of pension schemes. But the way it works in practice can vary. Now, if you pay £80 into your pension, and you're a basic rate taxpayer, then the government will top that up by £20. So, £100 will go into your pension. Now, if you're a higher or additional rate taxpayer, then you'll get extra tax relief. So, an extra £20 and an extra £25. You'll get at the higher rate of tax, and so, that brings the tax relief. You can see the example for a higher rate taxpayer there.

But, and, you know, this is an important point to make, you may either get that extra tax relief, so that extra if you're a higher or additional rate taxpayer automatically, or you might have to claim it back from HMRC. So, if you're paying into an individual pension or, or some types of workplace scheme, then you'll get that same 20% or 25% tax relief. Sorry, same 20% basic rate tax relief, but you'll have to claim that extra twenty or 25% from HMRC. Now, you can do this in a tax return, if you fill one in, or you can phone them up. Don't miss out on money in doing this, and lots of people do miss out on this.

So, it's one to be aware of. However, some employers operate slightly differently. So, if they operate a scheme called salary exchange, or sometimes called a salary sacrifice, and we're going to come back to this a little bit later on about how that works. Now, your pension contributions are taken off your salary before tax is paid. Now, in that situation, or if it's a type of pension like a, a public sector pension scheme, or another type of scheme where it's also taken off before tax, then if you're a higher or additional rate taxpayer, you don't need to claim anything back because you're getting the benefit of the full amount of tax relief immediately.

Sarah Pennells: So, I think the message there is if you are a higher or additional rate taxpayer, then it's important to check if you do have to do something to get all that tax relief back or you might be losing out. Now, if you're in a workplace pension scheme, then your employer has to pay something into your pension as well. So, you have the benefit of the tax relief and that money from your employer. But Clare, one of the other features of a pension is that there are limits on how much you can pay into it each year. Now, pensions aren't the only kind of investment that have these annual limits, you know, ISAs do as well, for example. But how does it work if you have a pension?

Clare Moffat: Yes. And we've had lots of questions on this as well, including from Michelle who asks, what's the maximum lump sum she can pay in. So, for most people who are employees, the maximum that they can pay into their pension and get that government top-up tax relief is their earnings. So, if you earn £20,000 a year, then, theoretically, the most that you could pay in and get tax relief is £20,000 a year. But if someone isn't working then they can still pay £2,880 a year into a pension, and they'll get a 20% top-up as well. So, that means they would have £3,600 going into a pension.

Now, anyone can have a pension, even children. Your pension provider might have an app that shows you the amount of tax relief that you're getting from the government, and that's interesting to look at, but one thing to mention is that if it's a salary sacrifice or a salary exchange scheme, it might not be as obvious to see on an app, but you are still getting the benefit of the tax relief because you're not paying tax on that money.

Sarah Pennells: But if you're watching this in Scotland, then there are-, there are different tax rates, aren't there?

Clare Moffat: Yes. There are different rates of tax in Scotland, so you might be paying more tax than in the rest of the UK. Now, if you're a higher rate or an additional rate taxpayer, then these tax rates are increasing, again, on the 6th of April this year by 1%. However, the more tax you pay, the more relief you get. So, that actually means more money in your pension. So, in Scotland, if you're a higher rate taxpayer, you, you will be paying 42%, but instead of getting 40% tax relief, you'll be getting 42% tax relief.

Sarah Pennells: Now, Clare, you mentioned salary sacrifice a moment ago. And again, we had quite a few questions on this, including one from Kate, who wants to know, 'Is salary sacrifice something that's always offered?' I think before we answer that, well, just to explain a wee bit more about salary sacrifice. Now you, you described it as salary sacrifice or salary exchange. It's, it's known as both of those things. And, in a way, salary exchange is a-, is a better description because what you do is you give up, essentially, or exchange a percentage of your salary and that money is then paid into your pension by your employer. They pay that money into your pension on your behalf.

So, you're not actually sacrificing it because you are exchanging it for something in return. Now, doing it this way means that you can save National Insurance which is, of course, just another tax. And that means more money can go into your pension. So, you know, you could either, if you switched into a salary sacrifice, you could either carry on saying, putting in the same amount into your pension, which actually means more money would go into your pension, or, and if you could prefer, you could set it up so the same goes into your pension, and in that case, you'll end up with slightly more take-home pay.

Now, using salary sacrifice means that there would have to be a change to your employment contact, and there are some circumstances where salary sacrifice can't be used, or isn't a good idea. So, for example, you can't use salary sacrifice if it means that your wages will be taken below the minimum wage. Now, for the majority of people, though, salary sacrifice is definitely worth considering. But if your employer offers this, then they'll be able to let you know the circumstances where it's not a good idea. Now, if you receive a bonus through your work, then you can use bonus exchange, if your employer offers that, and that works in the same way.

So, kind of, back to Kate's original question which is, 'Is this something that's offered everywhere?' The answer is no. It's not necessarily something that all employers offer, although a number of them do. But there are tax advantages for employers as well. So, if your employer doesn't offer salary sacrifice, it's definitely worth asking if they consider it.

Clare Moffat: Yes, we've had a question from Ioli and a couple of other people about moving overseas. Now, the question asked was, 'If I leave the country and don't come back, can I get my pension money back?' Well, the whole pension, including any tax relief and employer contribution can usually be moved to something called a qualifying recognised overseas pension. Now, that's a pension in another country which HMRC feels operates in a similar way. Now, you can sometimes leave your pension here and your pension could be paid to an overseas bank account, but you know, in both of these situations, I would say that financial advice is key because you're dealing with different jurisdictions and there are different tax issues in different countries.

Sarah Pennells: Now, Clare, we just talked a bit about how much you can pay into your pension in relation to your salary, but if you're in the fortunate position of earning say, you know, £100,000 a year, £50,000, whatever it is. Could you pay all of that into your pension, assuming that you could afford to?

Clare Moffat: Well, in theory yes, but there might be some tax consequences of doing that. So, so, let's talk about something called the annual allowance. Now, the first thing to say is that the annual allowance will not impact most people in the UK, but it's worth explaining how it works because it is being mentioned in the press a lot just now. Now, the annual allowance is a limit on how much money can go into your pension in any one tax year, without paying a tax charge. It's not the maximum pension contributions that you can make, which, which we spoke about earlier and it's really easy to confuse these two situations.

You could still pay more than the annual allowance if you have those earnings to support it, but you would have to be taxed for the amount over the annual allowance. And the annual allowance is currently £40,000 for most people. So, in that example of someone earning £100,000 for example, they'd be able to pay £40,000 of their salary into their pension, in the current tax year without a tax charge, but there is tax concession, and you'll see on the right of the screen there. There's something called carry forward. Now, you can use this if you ever had any amount in a pension. So, you just need to have had even £20 in a stakeholder pension years ago to be able to use carry forward.

Now, this means if you haven't used your annual allowance from the three years before the current year, then you can carry that forward. But this is only relevant if you can make them large contributions into your pension and you have the earnings to match that mount of pension contribution that you want to make. Now, again, financial advice is key to help with carry forward, it's quite complicated. If you want to find out, you know, more information about how carry forward works, again, there's a really helpful article about it on the MoneyHelper website.

Sarah Pennells: And it's important to say as well, that how pensions saving are measured against the annual allowance depends on the, kind of, pension scheme that you're in. So, for defined contribution pensions, which we've been talking about, where you and if you're employed, your employer build up a pot of money and based on your own contributions, plus of course, that tax relief. Any employer contributions and any contributions made on your behalf by someone else, all count towards that allowance.

Clare Moffat: For defined benefit pensions, it's not quite as easy as that. So, that's-, so it's mainly public sector pensions now and where you're guaranteed that certain amount in retirement, which is linked to the salary you earned when you're employed. Now, in that situation, your annual allowance is based on the increase in your pension benefits over the tax year. So, that can be quite tricky to work out because it's just-, it's not as easy knowing £20,000 went into your pension fund.

Now, your pension scheme can explain more about this, and they'll tell you how much you've used. Again, if you think that the annual allowance affects you, the best thing to do is to take financial advice and it's really important to say, that an annual allowance tax charge it doesn't necessarily mean that you should stop paying into your pension, you can actually end up better off in retirement, even if you have had an annual allowance tax charge. But an adviser will help you work all of this out.

Sarah Pennells: I realise that we're throwing a lot of terminology around, but I have heard of one, something called tapered annual allowance. So, is that the same as the annual allowance?

Clare Moffat: I think the confusing is that lots of these terms sound quite similar. So, the tapered annual allowance is not quite the same as the annual allowance. Now, this affects even fewer people than it did a few years ago and it reduces that annual allowance from that £40,000 mark, gradually, sort of, tapering down until it could reduce to £4,000. Now, it all depends on how much you earn. There's a two part test, but essentially this is only going to affect you if you have income over £200,000 after your pension contributions have been deducted.

Again, getting advice on this, you know, if it is something that you think might impact you is really important. Okay, so, there's one more allowance though that we should mention. And again, it sounds quite similar. We've saved this one until the end because this allowance, now it's called the money purchase annual allowance is unlike the other allowances we've discussed because it's only going to affect you when you take money out of your pension, not when you pay money in. So, Sarah, can you tell us a little bit more about the money purchase annual allowance?

Sarah Pennells: Yes, absolutely. And we aren’t speaking in detail in this webinar are about what happens if you take money out of your pensions because frankly, we just don't have time today, but it is worth talking about the money purchase annual allowance for the reasons Clare mentioned. It's been in the news recently and there have even been some rumours that it may be disappearing in next week's budget, so it's good to mention it. And it is something that can potentially affect a lot of people.

So, the money purchase annual allowance may affect you if you start to take money flexibly out of your defined contribution pension pot and later, want to contribute to a pension and it does this by dramatically reducing the amount of money that you can pay into your pension every year, without having to pay a tax charge. Now, taking money flexibly includes, taking an income, or maybe taking a series of lump sums from your pension, but it doesn't include taking the tax free cash out of your pension, or using your pension to buy a regular income in the form of an annuity.

So, let's talk about this more and explain it with some figures. We've said that the annual allowance is £40,000, but if you trigger the money purchase annual allowance then the amount that can be paid into your pension drops right down to £4,000. So, for example, you know, you might have stopped work and, you know, retired and started to take a bit out of money out of your pension, on top of that tax free cash lump sum. And then realised that actually, either you miss work or the cost of living crisis, for example, means you have to go back to work. And then when you're back in work, you'd only be able to contribute £4,000 a year into your defined contribution pensions.

Now, £4,000, that's about £333 a month, but as I mentioned earlier, that £4,000 limit includes any contributions you make, any contributions your employer makes, if you're in a workplace scheme and the tax relief. And we are seeing more and more people going back into work as a result of the cost of living crisis when they had retired. So, I think having explained when it does apply, Clare, when doesn't the money purchase annual allowance apply?

Clare Moffat: Well, it doesn't apply if you take money out of a defined benefit pension. So, those public sector pensions we mentioned. So, say I was a nurse, so, if I retired at 55 and took my tax free cash and pension income, but then decided a few years later that I wanted to do a totally different job and I went to work in a shop. The money purchase annual allowance doesn't apply to me and that's because it's not flexible access, it's from a defined benefit pension. And in a similar way, it doesn't apply if you take tax free cash and buying an annuity which isn't flexible.

It also doesn't apply if you only take your tax free cash and then move the rest of your pension money into drawdown, but don't take any income from that drawdown. So, that might be because you're still working. So, we would often see people reach the age of 55 and want to access some of their tax free cash and move the rest into drawdown. So, they will not trigger the money purchase annual allowance. So, just to put some numbers around it. If I have a £100,000 in my pension pot, take £25,000 tax free cash and move the rest into drawdown, but don't touch it, probably because I'm still working, my annual allowance will still stay at £40,000. And it also doesn't apply if you take up to three small pensions of less than £10,000.

Sarah Pennells: And what about a bit more detail about when it does apply?

Clare Moffat: Well, it will apply if you've moved that pension pot into drawdown and start to even take £1 of income. So, probably when you've stopped working, that you need some income to live on. It'll also apply if you take any amount of a cash lump sum. Now, cash lump sums are those payments where 25% is taxed at 0 but the other 75% is taxable, both those payments come into your bank account at the same time. So, you'll get the tax free part and the taxable part.

Now, if I even took £100 of one of these cash lump sums, then I trigger the money purchase annual allowance. Before we hand over questions that have come in during the webinar, there's one question that many people submitted, in fact, it was one of the most asked questions. Eleanor was just one person who asked it. Now, that question is, 'I have multiple pensions from different jobs, should I consolidate them?' And again, Sarah, this is another topic that we did a webinar on.

Sarah Pennells: That's right. So, we did a webinar on pensions transfers or pension consolidation last summer and there's the link to that on this page. I think though, having said that, it is worth spending a bit of time just talking about some of the pros and cons of transferring. Before we do that though, I think it's also worth saying, when you can't transfer a pension. So, you can't transfer a pension if you're in a public sector scheme, such as the NHS, teachers, police or fire fighters and that's because the money that you pay into your pension today, goes out to pay today's pensioners. So, there's no actual fund for you to transfer out of.

The only exception in terms of public sector pensions is the local government pension scheme, which does have a fund. So, in theory, you could transfer it, but it is generally assumed to be bad idea to transfer from one of these public sector final, defined benefit pensions. So, Clare, if you are somebody and many of the people who submitted questions who you said did, who has say, several defined contributions pensions and you're thinking of transferring or consolidating, what are the main pros and cons?

Clare Moffat: Well, there are several things that you need to think about. It's worth emphasising that we're not financial advisers, so we can't advice you on the best course of action. But in terms of pros and cons, there are a few to consider. So, the first thing is charges. Now, it might be worth consolidating your pension to one that has lower charges, but the cheapest isn't always the best. Now, you might be actually paying a little bit extra, for, extra for features that are really important to you. Secondly, fund choice. Now, we talked earlier about where your pension money is invested and the fact that you don't have to keep it in default fund, for example. Now, most pension schemes have a number of different investment funds that you choose from, but some might have a wider range and others might have a focus on certain things. So, for example, responsible investment and again, that could be really important to you.

Now, if you've a few smaller pension pots of under £10,000, so, maximum of three. You might not want to transfer them because you could take them out without triggering the money purchase annual allowance that we, you know, I just spoke about. So, it might be useful, even if you've got, you know, a kind of, a bigger pot to leave a few of these little pots because it wouldn't trigger that allowance. The last reason why you might want to combine your pensions is if one or more of your pensions has quite restricted options in terms of what you can do with your money when you retire. So, you might have to take all of your money in one go for example, or you might not be able to go into what's called drawdown and that could be because it's an older style, type of, pension.

Sarah Pennells: Now, it is important to say of course, that there's no guarantee that by, by combining your pensions, they'll do any better than if you left them where they were. And in some cases, it can be a bad idea to transfer your pensions, especially if they're older ones because they can have a valuable features, such as a guaranteed annuity rate or a guaranteed value. Now, if you do want to find out more about transferring your pensions, I would really recommend that you watch our webinar and if you're thinking of combining your pensions, it's a good idea to talk to a financial adviser.

So, we've covered a lot in the last, well, 40, nearly 45 minutes or so, but we do have some time for some questions, but before we do that there's one last poll because we'd really like to know, what topics, what topic you'd like us to cover in future webinars. So, please vote now in the last poll of our webinar.

Clare Moffat: It's interesting, the numbers are going up and down.

Sarah Pennells: So, at the moment, pension options at retirement is winning by a nose, I'd say.

Clare Moffat: Yes, and we didn't have the time today to talk about what happens at retirement. It's a massive subject as well and again, you know, in the questions before the session today we did have quite a few questions on that as well because it does seem quite a confusing time and people aren't sure about the different options that are available.

Sarah Pennells: Yes. So, okay, well, I think, you know, I think we've got a very clear, a clear answer there. So, that's good to know. Also, the one on financial advisers, how to find a financial adviser and what they do. So, thanks very much for voting because that's really definitely given us some very clear answers about what you want to know about next. So, as I said, we have got time for some questions, and we've had a lot of questions coming in. So, again, thank you so much for submitting questions.

The most popular one which is from Alex, I, I think it's something we've just been talking about which is transferring pensions. So, hopefully Alex, you feel that we've answered your question. Alex says, 'I've got a couple of different pensions from different jobs, plus my current one with Royal London, is it advisable to bring these into one fund.' So, we have just covered it and as I mentioned there is the link to the transfers webinar. So, I hope you don't think that we're ignoring your question but it's a really important topic, but I think the best thing probably, unless there's anything you want to add Clare. The best thing is possibly to listen to our webinar.

Clare Moffat: Yes. I think there was a lot more detail in that webinar, but it is something and because people are changing jobs much more frequently than they did in the past, then people will have more pension pots and, you know, it, it's obvious-, you know, everybody, kind of, thinks, 'Will, will it make it easier administratively if I can everything in the same fund?' But for some of the reasons we mentioned, there are, you know-, sometimes it might be a good idea but there could also be scenarios when not a good idea to do that. But, yeah, much more detail in the webinar on that.

Sarah Pennells: And I think it does depend a bit on the kind of person that you are, in that some people find it quite easy to keep track of a lot of pensions. That might seem like an odd thing to say but especially these days when many pension companies have apps, you know, you can login online. It-, not that you necessarily have to go through pieces of paperwork to find out what's happened to your pension. Other people do find it quite overwhelming. So I think it's about, you know, there, there may be reasons around, you know, charges and things like that, and the levels of risk and, and, and the features you mentioned, but it also does come down a little bit to the kind of person that you are. But, as we've pointed out, there are some pros and cons and it is definitely worth thinking about what you might be giving up as well as, you know, the level of charges you could pay by transferring and so on. So, okay, we've had quite a few more questions. Now, Lily has submitted a question saying, 'I'm a bit concerned that the value of my pension has dropped. What can I do about this?' And we did have one question about this that we covered earlier on in the webinar but, Clare, I think it's just worth spending a bit more time talking about this, because, you know, nobody likes to see the value of their investments, whether it's a pension or, you know, stocks and shares, an ISA, whatever it is-, you don't want to see that value go down.

But I'm not trying to be flippant when I say that, but stocks and shares, investments, I mean, they're, they're not a steady line. They do go up and down. You do get volatility. That does go along with investing in stocks and shares. But is there anything people can or should do, apart from, you know, understand that emotional side, which is it is hard to see the value of your money going down?

Clare Moffat: I think when there’s times of, you know, things are happening that maybe are causing fluctuations in the stock market. If people are looking at an app every day, then that's not giving them a, kind of, consolidated view over, over time. So sometimes that can make people feel a little bit more anxious. It's also very important, and you mentioned this earlier, you know, risk and, and what level of risk you're comfortable with is important, and that's when it can be really good to have a financial adviser who can talk through these things. Also it's worth remembering that pensions are a long-term investment and they do invest-, pension funds invest in a huge amount of different assets so they'll have different-, it, you know, it won't just all be equities, whether it can be a bit more of a, kind of, volatility. There might be commercial property, for example. There might be other, like, government bonds and things like that. So, there is-, you know, they're meant to, kind of-, that, that should deal with some of the risk. But obviously if you're in your twenties, for example, then you've got a long time until you can take out your pension, so perhaps, you know, worrying about what's going to happen then isn't as important as if you're getting closer to retirement. You might be thinking about, 'Well, maybe I should be in some more cautious type of investments.'

But, you know, I, I can't, kind of, say enough that actually having a financial adviser whose job it is to take that kind of worry away from you by helping you work out what level of risk you're comfortable for is, is really worth its weight in gold.

Sarah Pennells: Yeah, really good points, and I think it's also just worth saying that, depending on the age that somebody is, they may want to have a, a, an appointment with Pension Wise. Now, Pension Wise can't give anybody financial advice but it can talk you through the options. It's designed for people who have to find contribution pensions once they're over the age of 50 to think about the different options. But, again, it might just be useful to, kind of, just, just to have a conversation so you can find out. Pension Wise is-, it's a government website and you can book a-, you can have an online appointment or you can book a phone call, so that's maybe something to think about as well. Now, we are getting quite a few questions about what happens to your money when you take it-, what happens to your pension when you take money out of it, which we, sort of, said we weren't going to cover but I don't want to ignore the questions that are getting voted up. So, there's one here from Phil, which is-, Phil Jones, who says, 'What is the impact of withdrawing from my pension at the age of 55 if I plan on carrying on working? Would it affect other pensions or are they considered totally separate?' So, Clare, what's, what's the answer to that?

Clare Moffat: Okay, so let's, kind of, take the first part of this. So if Phil wanted to take, say, his tax-free cash, because he's still working, so he takes his tax-free cash and that money comes into his bank account and he moves the rest into drawdown, so the other 75% goes into drawdown. Now, drawdown is just like a, a, a pension pot. It's invested. It can be invested in similar assets, but that-, if he doesn't take any of, of that money, then he'll not have any additional income tax to pay. He'll not trigger that money purchase annual allowance we spoke about. So, looking at it that way, just taking the tax-free cash, if that's what he needed, then that's probably the-, a better thing to do. If he decided he needed all of a fund, so say he had three different pensions but one of them was worth £50,000, for example, if he wanted to take all of that pension then, then 25% of that £50,000 would be tax-free, but he would pay tax on the other 75%. And, you know, so there's an income tax issue because he'd be paying more tax than he normally would be paying, but he would also trigger that money purchase annual allowance, which would mean he'd be restricted to paying a maximum of £4,000 into his other pensions. I think when Phil's saying would it affect other pensions or are they considered separate, so they, they are separate. They're separate pensions. For each of those pensions, you get 25% tax-free cash and you can do different things with them.

So, you could move, you know-, take tax-free cash from one pension and move the other 75% drawdown but you-, you know, with another pension, you could take 25% tax-free cash and then buy an annuity with the part that's, that's left as well. So, you can do different things with them but from each of those pensions, you are allowed 25% tax-free cash. But if you go over that 25% tax-free cash and you access any of the rest flexibly, or you take one of those cash lump sums, so instead of taking that 25% tax-free cash, you take a cash lump sum and that comes with-, you know, I mentioned the fact that that comes, kind of, together, so you get the tax-free part together with the taxable part. There's an income tax issue but also, even for that £100, if he takes it, then he would trigger that money purchasing allowance.

Sarah Pennells: Great stuff, thank you. Now, we've had another question. We have one from Kerry about is it better to keep pensions separate or transfer them but I think we'll-, I, I think we've done quite a lot on pension transfers, just in this-, in this webinar and I said we did the whole webinar in June, I think it was, last year. So, I hope you find that useful. Jane's asked a question saying, 'If you've had a number of providers over the years, is there an easy way to find out where you hold differing pots of pension funds?' And, and, Clare, I mean, if I mention the two words pension dashboard, I think this is something we've talked about in a couple of webinars, about how this is going to be, kind of, coming down the tracks and this is gonna be-, you'll be able to see all your pensions in one place, including your State Pension. But there was news about that just last week, wasn't there?

Clare Moffat: Yes, so the pension dashboard is being put back a little, just so there can be more testing and, and things like that done. And it will make things much easier, but just now, what Jane could do is get in touch with the providers. If you can find the paperwork, get in touch with the providers. They'll be able to tell you how much is in the different funds. What happens if people move house sometimes, they don't remember to let different-, especially if it's a job, a few jobs ago, then you might not remember to get in touch with the pension scheme. So, sometimes people aren't getting the documentation to the right address. But if you think you, you know, you might have been in a pension and you can't remember much about it, then I think the Pension Tracing Service is a good service to use. Sarah, if you want to say anything more about that?

Sarah Pennells: Yeah, so, as, as you say about the pension dashboard, I think it was due to come in in 2024, I believe, but there has been, as you say, a, sort of, a slight delay on that. The Pension Tracing Service, now, it's really worth saying that this is-, this is a government service and it's called Pension Tracing Service but it doesn't actually trace the pension for you and, kind of, bring it to you. What it does do, though, which is very useful, it will give you the latest and, sort of, up to date contact details for an old pension that you have. So, what you need to do is either have your current name of your employer, an old name of the employer if you don't have that, or if you know the pension scheme name, then pop that information in. And that's a, a government website and we can send out the details of that with the e-mail after the webinar or with the link to this webinar. And what the Pension Tracing Service does is it'll give you the up to date contact details. You then need to contact them. They'll normally ask you for your National Insurance number and some other questions, and then they'll tell you whether indeed you have got a pension with them and then you can find out how much it's worth. Now, when you're looking for the Pension Tracing Service, please make sure that you look at the, the gov.uk website because there are some other companies around that sometimes advertise and, you know, come to the top of a Google search or search engine search and they may charge you.

Whereas the government's Pension Tracing Service is free to use. Now, we've had a lot of questions. As I said, a lot of them actually are about pensions and retirement, so I think that's definitely gonna be something we do a webinar on. But there was another question that I just saw a moment ago and I was thinking, 'This would be a really good-, yeah, it's a question from Dave, who says, 'Is the income from the State Pension taken into account when income tax is calculated from private pensions?'

Clare Moffat: So, yes, yes and no. It sits in your income tax stack, which means that then if you have other pensions, then they will-, so it will use up-, that State Pension will use up some of your personal allowance, so we've got £12,570 of our personal allowance. State Pension will, as we talked about earlier, so it's going to over £10,000, it will use up most of your personal allowance. So, so if you only had State Pension, then you wouldn't pay any tax on it, but if you have private pensions sitting on top of that, then you will use up the last bit of your personal allowance and then you'll pay 20% tax, 40% tax and, and so on. So it's a, kind of, yes and no question. So it might be that you-, say you retired at 60, then your State Pension wouldn't have kicked in. So, you would receive more of your private pension money without paying tax on it, but then when your State Pension does kick in, it essentially comes first. And then pensions are taxed like salary is taxed. It works in exactly the same way. So, you know, it just has, kind of, bands and thresholds, so once you're over the personal allowance, as I said, you're paying 20% tax.

Sarah Pennells: Okay. I'm gonna try and sneak in two questions in the last few minutes, so they're, they're hopefully short-ish answers. So, Simon has asked, 'What is a drawdown?'

Clare Moffat: Okay, so drawdown, if, if you think of a pension pot for the money you save up, so the money that you pay into, your employer might pay into and where the tax relief goes, if you think of that as one pot and it's invested-, as I said, it can be invested in lots of different things. Well, a drawdown pot is just another type of, of pot. It's just-, it's invested in the same way. It could be invested in exactly the same type of assets. The only difference is that one has-, you know, you have to go through a, kind of, pensions tax process to get from one to the other, and you would have an entitlement to tax-free cash. So once you take your tax-free cash and then move the rest into drawdown, you can do that. You don't have to do that all at once, so you could take-, you might have a, a pension pot of £100,000. You might take £10,000 and you could take £2,500 as tax-free cash and move the other £7,500 into drawdown. Then that money is just sitting available for you to take out when you want to take it out. So, you've got to be over 55 and you can't pay money into a drawdown plan. So if you can still make pension contributions, then the money would go into that, kind of, pension pot but the drawdown fund-, kind of, you don't ever need to take any money from that. Some people leave some pensions and pass them on on death.

But when you take-, you can take money out of it, but you can't pay into that separate pot. So if you think of them as, kind of, two different pots but, sort of, invested in the same things.

Sarah Pennells: Okay. Right, now one last question, which hopefully is going to be quite a quick answer. It's a question from Murray who wants to know, 'Tax relief is not provided on employer contributions. Correct?'

Clare Moffat: Well, yes and no. If you are-,

Sarah Pennells: Your favourite answer.

Clare Moffat: I know. If you're a business owner, then an employer contribution, you'll get corporation tax relief on. So if you're a, a director of a business, so there is corporation tax relief on that. And, but I don't know if this question is in relation to, kind of, when we spoke about salary exchange. Because what happens there is that you, your employer is making the full contribution on your behalf and, in exchange, you're getting less salary normally. So, so you're not getting income tax relief on that but you aren't-, well, it's not in the same way as we mentioned. So what happens is your, your employer is going to pay more on your behalf and your salary goes down, so because your salary has gone down, you pay less income tax and less National Insurance. So that might be what he's, kind of, getting at but, yeah, so employer contributions do get tax relief, it's just not income tax relief.

Sarah Pennells: Okay, well, great stuff. We have had so many other questions but we are going to probably carry some of these over into future webinars because, as I said, we've had a lot of questions about pensions and retirement. But thanks again. A huge thank you to everybody who submitted questions in advance and during the webinar, and for voting in our polls, all of which is appreciated. So, we will be sending out a, a link to the recording of the webinar in the next day or so. In the meantime, thanks again very much for joining us and have a very good afternoon.

Clare Moffat: Thank you.