Are you saving enough for the retirement you want?

Clare Moffat: Hi everyone, I’m Clare Moffat, and my job at Royal London is to help explain how pensions work. Welcome to our webinar today.

If I say the word ‘retirement’ to you, what comes to mind? Maybe it’s the luxury of not having to work to pay your bills and being able to spend time doing what you want to do. Or maybe it’s something that feels a long way away, that ‘old’ people do and, frankly, it doesn’t feel very relevant to you.

Well, the good news – I hope – is that because we’re living longer than our parents and grandparents, we could spend 20 years or longer in retirement. But of course, the big question is, how do we pay for it?

You might have the dream or hope of retiring at a certain age, or of spending your retirement years seeing the world. But have you ever taken a step back to look at what you have to do in order to achieve that dream?

Now while the majority of people will have a pension they pay into on a monthly basis, have you ever actually looked into how much you should be saving if you wanted to retire early or to afford a certain lifestyle when you do retire?

Now today I’m delighted to be joined by our consumer finance specialist, Sarah Pennells, to discuss just that. Now I’ve got quite a few questions that I am going to ask Sarah to get the ball rolling, but then we’ve got some time at the end to answer your questions so please type these into the Q and A box at the side. Now we can’t answer any specific Royal London queries in this webinar, but we can deal with general pension questions you have.

But now it’s time to meet Sarah. Hi Sarah!

Sarah Pennells: Hello!

Clare: Welcome – so could you start by telling us a bit about your role at Royal London?

Sarah: Yes, so I’m the consumer finance specialist at Royal London and what that means is that I look at the kind of financial issues that affect people day to day. So at the moment I’m looking a lot at the cost of living rises, so the huge hike in energy bills due to come in April, inflation, interest rates, the rise in National Insurance and so on. But I could also be looking at things like the impact of climate change and how that might affect our lifestyle in retirement if we end up having really hot summers or our homes are at increased risk of flooding and looking at what we could possibly do about that now. So that’s a mixture of talking to customers through webinars like this, through our customer newsletter, through content on our website but also doing media interviews so talking on TV, radio and the press.

Clare: Thanks Sarah. So today we’re talking about retirement. It feels like a bit of a big topic. So where do we start with it?

Sarah: It is one of those things I think can seem quite daunting because as you say, it is a really big topic. And I think that’s one of the reasons why people don’t maybe take that first step. And I think the other issue is that retirement can seem so far away it can seem like something that you don’t need to start thinking about now.

But there are a couple of things – firstly I would really start to think about the lifestyle you want in retirement. So, really start to imagine how you’re going to live your life in retirement. What are you going to be doing and how are you going to pay for it? So that you’re starting to kind of picture that life. Now I’m a real fan of writing things down and thinking, okay, how do I want to spend my time, what will I spend my days and weeks doing? And then starting to work out what you think those things might cost. And I think it makes it a bit easier to - well it makes it easier for me anyway! It makes it easier for some people to start thinking about retirement like that rather than for example starting with the numbers. Which, you know, for some people can be a bit dry, a bit of a turn off.

Clare: Okay but what about those people who do love numbers, should they start somewhere else?

Sarah: That’s a really good point. So there are some people for who numbers really do it for them, and in which case I think it’s a question of starting with what you know you’re going to get for retirement if you don’t have any other kind o pension. So you know for us, the foundation of our retirement income is going to be the state pension. So therefore it’s looking at what you’re going to get from your state pension.

So for somebody who’s retiring today who’s entitled to the maximum amount so they’ve got the full national insurance record, the amount of money that they would get by way of the state pension is £9,339 a year. Now that’s an amount that you’ll get per person. Not that works out at around £778 a month.

Clare: Thanks Sarah. So at this point id like us to do a poll. Now that’s beside the Q and A tab. No one will know how you’ve voted by please do tell us what you think. so the first question is at what age would you like to retire? And there’s some options that you’ll see there. So please think about kind of that age grouping that you would like to have a look at, and we can see some of the numbers starting to come in. that’s moving about a bit Sarah.

Sarah: Yeah it is, it’s really interesting actually seeing how people are voting and the kind of ages that people want to retire at. So I think we’ll just keep it moving for a minute or two because people are still carrying on voting. A minute feels like a long time! Maybe not a minute or two!

Clare: If you vote you’ll see how other people respond as well so that’s interesting.

Sarah: Okay, it seems to have settled down so shall we have a quick, do you want to have a quick run though the numbers?

Clare: Yeah so at the top we’ve got 63-65. Oh no! that’s just changed on my screen, 59 to 63. So we’ve got some people who have just voted who want to retire when they’re younger. Then 63 to 65, followed by 55 to 58, 66 to 68 and there’s not many people, only 5% so far, who would want to retire at 69 plus. So, Sarah, why have we asked this question?

Sarah: Well the reason I was keen to get a poll of what people thought is to link it to the State Pension age. So the last time I looked at this only 12% of people said they wanted to retire between 66 and 68 and the most popular answer was 59 to 62 and I think it was 63 to 65, those were about 29/30% each. But you don’t get your State Pension until you’re 66.

So for people retiring at the moment the earliest they can claim their State Pension is 66. And that State Pension age is due to rise, so it’s going up to 67 by 2028 and it’s due to go up to 68 in a few years after that. So unless you’re happy to wait until you get your State Pension I think that’s also going to skew how you then think about how much money you need in your retirement and therefore what you need to save each month.

Clare: And that’s really important. But Sarah, should people be focussing on the age they want to retire or the type of lifestyle they'd like to live?

Sarah: Well I think both really. I guess lifestyle is possibly more important in a way, in that the kind of lifestyle that you want at retirement is going to probably have a bigger impact on how much you need to save every month. So you know, if you’re the kind of person who’s thinking, you know when you’re picturing your retirement, you’re thinking I want to take up new hobbies. I want to travel abroad. I want to eat out a lot. I want to be able to do those things. I maybe want to have a car or what to do up my home.

Well, your retirement in terms of its cost is going to look very different from somebody else who thinks actually I’m quite happy with a fairly modest income in retirement. I don’t need or want to do those things. I’m not interested in eating out. I don’t want to run a car, that kind of thing. So that’s why I think thinking about your lifestyle is so important.

Now obviously for most people a big cost at the moment is going to be where we live. Whether you’re paying your rent or mortgage. Similarly in retirement it’s really important to think about where you’re going to live. And If you have a mortgage now, are you going to be paying that mortgage when you retire? And obviously if you’re renting are you going to be renting the same, similar kind of property to the one you live in at the moment or maybe somewhere that’s a bit cheaper.

 I mentioned the cost of living right at the start and household bills. They’re going to need to be paid as well so you need to factor in things like that. So I do think it is really important.

Now I mentioned about sort of picturing your lifestyle in retirement and why I think that’s a really good starting point. And one of the things I also meant to mention is that instead of thinking about retirement as this concept of something you drift in to when you end your working life, one way to flip it which really worked for me when I started thinking about my retirement quite a few years ago, was thinking about it being the age that you no longer have to work, to pay your bills.

Now I love my job, and I’m not just sating that because some of my colleagues are listening, but I don’t really think I want to retire in a few years’ time. I want to carry on working. But something that does get me quite excited in terms of thinking about my lifestyle at retirement is thinking about the age that I can stop, I can afford to stop work, I can still pay my bills without having to work.

And so that leads me onto the second part and the part we were just talking about as a result of that poll. When do you want to retire? It doesn’t have to be the same as giving up work. But when do you want to have that freedom to stop work, if that’s what you want to do? And does that tie up with when you’re going to get the State Pension? Which is going to be 66 for people retiring now, could be 67, 68, possibly even later for people who are younger. So that’s how I’d think about it. And that’s why I think both lifestyle and when you want to retire are really important.

Clare: That’s great Sarah, thank you. Now time for another poll. So if you were to think about your life in retirement, which of these is closest to how you imagine it? Now obviously everyone will have very different ideas about their life in retirement but try and pick and answer that’s closest to what a good retirement looks like for you.

There’s three options there. Again if you put your answer in and we’ll have a look at what most people are saying. It’s moving about a bit.

Sarah: I think these results are really interesting at this early stage it’ll be good to see what they settle down to., but yeah it’s quite good to see what people are going for as their top answer.

Clare: Yeah I think the top answer is my top answer as well!

Sarah: Okay what do you reckon it’s settling down, should we share the top answer?

Clare: I think that’s settled down now. So, top answer is ‘holiday abroad three times a year, eating out once a week’ followed by ‘one holiday abroad a year and eating out once a month’ and third, ‘holiday in the UK eat out once in a while’.

So I think possibly we could have predicted that result Sarah?

Sarah: Yeah and I can see why people have voted for that and I voted for the top one as well! Once of my reasons why I wanted to ask this poll was not to be nosy about the kind of lifestyle people want in retirement, but to really try and link it back again to how much that might cost you.

So there’s a really useful website which is called RetirementLivingStandards.org.uk and we’ve put the details in the link below. And that website has information about sort of the kind of retirement you might want, and it puts a figure on it. And the research has been done by independent researchers from Loughborough University and they’ve come up with three different categories of how much people might need or want to live on in retirement depending on the kind of lifestyle they’d like.

So the least popular option form our poll was one where it’s minimum standards of living in retirement. And for that the researchers reckon that you’ll need £10,900 a year. And for that you’ll be able to do things like eat out once in a while. You’ll be able to have a holiday in the UK, spend about £40 a week on food shopping, about £40 a month on clothes and shoes. But you wouldn’t, for example, be able to afford to run a car.

Now at the other end of the spectrum, at the other extreme, the researchers have looked at what they call a comfortable lifestyle. And in that case you would have to have about £33,600 if you wanted to have a comfortable lifestyle in retirement. And these figures are both for somebody who, a single person, someone living on their own.

Now for this lifestyle as with the poll, was sort of first option that was not surprisingly very popular, you would be able to eat out in a decent restaurant one a week, have takeaways, go on these holidays abroad. You’d also be able to do up your home. Have a new kitchen of bathroom every 10 or 15 years or so. And you’d be able to have a car as well.

So I would really sort of recommend spending a bit of time on this Retirement Living Standards website. Play around, have a look at the different costs and see what appeals to you. It’s really helpful because it does break it down in some detail as to how much you might need to live on.

And it’s worth saying as well that there is the in-between version which is people who want to have what the researchers have called a moderate standard of living in retirement. And that means that you can go out a little bit at restaurants, have the odd takeaway here and there, you can spend a bit more on things like food and clothes and things like that. And you can run a car, but you wouldn’t be able to replace it as often as if you had this comfortable lifestyle. And in that case the figure that you need is £20,800 a year for a single person.

Now I’ve talked about how much you’ll need as a single person, as someone who lives on their own. If you do live with your partner, your husband or wife then obviously your costs will increase. But you wont need double the amount because generally it’s much cheaper for two people to live together than it is for two people to live in separate households. So in that example where I’ve said for a moderate income you’d need £20,800 a year if you’re someone living on your own, you’d need 30,600 a year if you were a couple.

Now I know I’ve thrown lots of figures around, but I think one thing I would just like to mention as well is that you don’t have to generate that entire income on your own. We talked earlier on about the State Pension and how much you’ll get from that. So depending on when you want to retire you may be able to have the State Pension kicking in from day one when you want to retire, or maybe a few years down the line if you want to retire below State Pension age.

Clare: That’s great Sarah. So this might be a bit of an obvious question, but when should people start saving into their pension?

Sarah: Ah! It’s a really good question. And you know I work for a pension company so you might expect me to say, ‘pile this money into your pension’. But really what I would say is do think about your pension and your retirement income when you can. The reason is that your pension money is invested. It’s not just sitting in a bank account. And it’s the money that you pay into your pension in the early years that kind of does most of the hard work the really heavy lifting. And the reason is that the money you invest in the early years when it starts getting a return in later years when you’re still making your contributions, the early contributions have generated their own return and then you start to get growth on those returns as well. It’s called compounding and it can be quite powerful.

And I think it’s just one of those things that it can feel if you’re young, in your 20s and so on, you can just think oh retirement is so far away. And especially I’ve just talked about when people are going to get to State Pension age. But the reason it is really important to try and think about starting your pension earlier rather than later if you can, is because of this heavy lifting that the early contributions do.

So I’ll just illustrate this with an example. I was talking earlier on about this sort of moderate standard of living, and comfortable standard of living from the Retirement Living Standards website.

So if you were happy to live on the minimum income which is £10,900 a year and you were to start saving into your pension from the age of 22 then you’d need to contribution £45 a month. Now if you left it until you were 40 that figure would rise to £90 a month.

Now if you prefer to live on that sort of moderate standard of living in retirement that middle one, so in which case you’d need to generate the income of £20,800 a year. Well in that case if you started saving when you were 22, the figure you would have to save would be £340 a month. But again it would almost double, it would be about £660 if you waited until you were 40.

Now again it is worth saying around those figures that I’ve quoted if you’re in a workplace pension whether it’s £45 a month you pay or whatever it is, £340, that’s not just down to your own contributions. That figure includes any money that you’re getting from your employer by way of contributions and the government top up that you’ll get through tax relief.

We have made some assumptions around these figures. So we’ve made some assumptions about inflation, we have assumed that you’re entitled to the full state pension at age 66. We’ve made some assumptions about the returns and about charges. So these figures aren’t set in stone, but they are just to give you a guide of the difference between starting to save for your retirement at age 22 and then not being able to or leaving it until you’re age 40.

Again it is worth saying again anyone who’s employed, or a worker, as opposed to being self-employed, as long as they’re aged 22 or over and earning more that £10,000 a year they will be automatically put into their employer’s workplace pension scheme. Now you can leave it if you want to, but in order to join it you don’t have to fill in reams of paperwork that work is already done for you.

Clare: Okay so, you’ve made the decision to start saving into a pension or not to leave the scheme if you have been put into your workplace pension. But how much should you be paying in?

Sarah: Yeah now that’s a really good question. It’s one of those questions that we get asked a lot. So again it’s really important to think about how much you want to retire on and that’s why thinking about the retirement lifestyle you want is so incredibly important. So the answer really will sort of depend, different people have different answers. But for example at the moment if you are enrolled into your employers workplace pension scheme, you will be saving 8% - that’s the kind of minimum amount that will go into a workplace pension. And that’s roughly 8% of your salary and that will be made up of your own contributions, and your employers contributions and this government tax top up. So the employer will pay in 3%, you will pay in 4% and then you’ll get an extra 1% which is this tax top up from the government.

And so you think ‘great well that’s money in going in, and I’m in my pension scheme, happy days’. But I think it is really important to think about whether that’s going to be enough for the retirement that you’d like. And especially as we’ve heard from people who have been voting that lots of us want to have a nice lifestyle in retirement and you completely understand why. So I think it’s really important to think about there may be a gap between what you’re paying and what you want, what you actually need, in terms of generating that income at retirement.

So there are some useful websites that can help you work this out, there are some pension calculators. We’ve got one on our on website. There’s one also on a website called MoneyHelper which is an impartial government-backed website. And what you can do with these pension calculators is you can put in information about how much you’re paying into your pension at the moment, how much your employer is paying in, and tax relief, and then any other pensions that you may have built up over the years you can put in those details. And then it’ll start to tell you what kind of income you might generate in retirement. Once you see that figure I think you can really start to work out is there a gap between what I want and what I’ve got?

I think as well, it’s really important to say that you know, I’m talking about lots of figures and picturing your retirement and working out how much is going into your pension, and how much you might get. And people might be thinking, I need to wrap a cold towel around my head and have a lie down! And that’s where I think, why a financial adviser can be so helpful.

At Royal London, we’re champions of financial advice. We think it’s really important for people to get financial advice. And one of the reasons is that we’ve done some research over the years that shows that financial advice doesn’t just make people better off financially it also helps them emotionally. So people who take regular financial advice are less likely to be anxious about their finances. They’re more likely to feel comfortable about their own financial future.

And what a financial adviser can do in this situation is they can really look at, help you to unpick that retirement lifestyle that you’d like and start to put some figures against it and then work backwards and say; okay you want this lifestyle in retirement, this is the kind of income you’d need to have including any State Pension for example, this is the income you’d need to have when you retire, let’s work backwards - this is the age you are now and therefore this is the amount that you should be setting aside every month.

So as I said I think having financial advice around something like this is really, really useful. But we know not everybody has a financial adviser, many people don’t so those calculators, and the MoneyHelper website that I mentioned, they can be a really useful as a really good starting point for you to do your own research. And even if you do have a financial adviser, I know lots of people like to do their own research before they talk to their adviser, so they feel they’ve got their head in the right space. So that’s why those websites can be a really good starting point. So the address of the MoneyHelper website, as I said it’s impartial and government-backed, is moneyhelper.org.uk.

Clare: That’s great Sarah, and I know that we’ve spoken in the past and said that actually we speak to a lot of people about their finances and pension and retirement, and people who’ve retired, and actually we very rarely we meet people who say ‘I’ve got so much money, I’m retired now, I don’t know what to do with it’ so these are top tips. Thanks Sarah.

Are there any rules of thumb that people can use to work out how much they should save?

Sarah: Yeah that’s another really good question.  I mean there are a few rules of thumb that I’ve seen over the years that are flying around but one that I think can be quite useful - take the age that you start saving into your pension and then that’s the basis of how much you should be putting into your pension every month as a percentage of your salary. So if we take somebody who can be automatically enrolled into their workplace pension, they’ll be 22 when that happens, so if you start saving into your pension when you’re 22, if you halve that age you get 11 then 11% is the amount of your salary or income that should be going into your pension every month. If you wait until you’re 30, if you can’t or you don’t think about saving into your pension til you’re 30, halve that that’s then 15%. If it’s 40 before you think about or are able to save for your pension I think that’s when it starts getting a bit ‘eek!’. It’s actually 20% of your salary then that needs to go into your pension.

But again while I’m talking about these figures as you know 11%, 15% or 20% that’s the total amount. So again if you’re employed or you’re a worker, you’ll be in your employer’s workplace pension scheme. So that includes not only your pension contributions but your employer’s and that top up from the government by way of tax relief.

Clare: So that’s definitely a great starting point to think about. Now, Sarah what would you say to people who didn't start saving in their early twenties though, especially if they can't afford to be saving more because of the current climate? I mean, is there anything else they could be doing to reach their goals?

Sarah: Yeah again I think it’s a really good question and for a lot of people there are always other priorities, there are always things that you think, oh actually I could be spending my money on this, or sometimes, I should be spending my money on this.

And you know, we have got a cost-of-living crisis. And I’m aware from talking to people of some of the really tough choices that people are having to make. So the first thing I’d say is that if you get to the stage in your life when suddenly retirement is feeling rather more real and you realise that you don’t have the kind of pension pot saved up that’s going to give you the kind of retirement you would really like, don’t panic because all is not lost.

There’s a couple of things that you may be able to do. Now some people may be able to do more of them than others, but I’ll just run through them anyway.

First of all, think about whether you’re in a position to put more money into your pension, that’s obvious in a way. But you may be able to put a lump sum in or maybe even just to edge up your monthly contributions. Even paying in an extra 1% of your salary every year could make a difference to the amount that you have at retirement. And if it’s not something you can do at the moment, maybe you are worrying about the cost of living, is it something you can do in 6 months? Is it something you can set a reminder to do in a year or at some point in the future? Even if it’s something you can’t do now, don’t just kind of ignore it, do try and come back to it if you can.

The other thing to look at is you may have other savings or investments. So I think we often talk about retirement and pensions interchangeably and although pensions are a really tax-efficient way to save for your retirement and if you’re in a workplace pension you have that advantage of getting the contributions from your employer as well. But people may have savings or ISAs or other things and it doesn’t have to be that your retirement income is only generated by your pension.

The other thing is can you retire later than you’d planned? Again we heard from the poll, we saw in the poll, the ages at which people wanted to retire but can you revisit that and either carry on working full time or maybe even part time? Now in days gone by you had to retire at the age of 65, but the default retirement age was abolished over a decade ago so now you do have much more choice about when you retire so that’s another thing to look at.

And I think lastly just think about where you’re going to live. So if you own your home, do you want to live in the same kind of property? Could you maybe free up some cash by selling and downsizing, buying something that’s a bit cheaper and having a lump sum of money? Maybe you think well actually I don’t want to move, I love where I live, I’m really happy here. Well in which case perhaps you could consider releasing some equity through equity release which is where you basically you take out a mortgage that you don’t pay back until you either die or move into long term care.

Now some of these decisions are going to be really big decisions, so if you’re thinking about selling up a property, talk about it with your family. If you’re thinking about equity release talk about it with your family, but it’s also really important to take legal and financial advice. I think the point is that even if you think actually, this is not where I wanted to be, I’m at whatever age I am and retirement suddenly feels quite real, there may be steps that you can take.

Clare: Okay, thanks Sarah. And how much should people be relying on their State Pension?

Sarah: Yeah I think this is such a good question and we talked earlier on about how much the State Pension was, is. So for somebody retiring at the moment it’s this figure of £9,339 a year. Now that’s assuming that you’re entitled to the full State Pension. So in that case you’ve either paid National Insurance for 35 years or you’ve been credited with National Insurance for part of that time, perhaps because you were out of work, claiming benefits, you were ill or you were not working, you were looking after your children and claiming child benefit.

Now that figure works out at around £179 a week. And again, if you want to break it down into a daily figure that comes in at just under £26 a day. And again if you think about that, and I’ve talked about this before, about this and State Pension figures to other people, that sort of £26 a day, and I think there’s the assumption that’s your spending money. That’s your money for your coffee and your treats. But it’s not. That £179 a week, £26 a day, that’s the money that you have to live on. That’s what you have to pay your bills, your food. If you want to go out it’s got to pay for everything.

And again some people might think, well actually I am quite happy with a fairly modest standard of living in retirement. But if that’s not you, if you don’t want to just retire on the State Pension then you really do have to think about paying into a pension, how else are you going to fund your retirement? And as I said much earlier on it’s not just about how much you get it’s also about when you get it. Are you happy to wait until you’re 66 or possibly even later to get that income in retirement?

Clare: Okay so let’s just do one last poll to have a think about that and to ask, would you be happy living on the State Pension alone, just State Pension, when you retire? So if you fill in the poll question and we’ll see what most people think.

I think the responses from earlier showed that people wanted to retire before State Pension age so there’s a bit of a gap there, but would most people think that that amount of money is going to be enough in retirement? I think it’s fairly conclusive Sarah so far. The numbers are still going up, but the percentage isn’t really changing. So it looks like 98% of people are saying actually they would need more money than State Pension in their retirement.

So Sarah what would you suggest to people that, what can they do to make sure they’ve got those pension savings, so they have that choice of when to retire and how to enjoy their retirement and that lifestyle that they want in retirement?

Sarah: Yeah so first of all I mentioned earlier on about workplace pensions, and you know these days most people will be in a workplace pension, so as I mentioned if you’re age 22 or over and if you earn at least £10,000 a year. Now it is important to say that if you have more that one job then that £10,000 threshold applies to each of your jobs.

So if you are in a workplace pension then you know it’s really important to stay in that because it’s a really good foundation for your retirement. And as I mentioned the benefit of a workplace pension is not only is your money going in, but you get that money from your work, from your employer, as well. I do understand, I’ve been talking about pension and savings, save for your retirement, prioritise your pensions, prioritise your retirement and I really understand that for a lot of people, especially for younger people you might be thinking – I’ve got other things to pay, I really have, I can’t prioritise my pension, and I do get that. I think we all get that, especially at the moment.

But I think it really comes back to this, well two fundamental points. One of them is if you don’t save for your retirement what will you live on? And we just saw from that poll 98% of people said they didn’t think the State Pension was enough for them. So if you don’t have any other pension then you will be living on just the State Pension.

And I think as well, it’s thinking about okay well if I don’t, if I’m not happy just to live on the State Pension and I really need to think about having a pension. I also mentioned earlier on that it’s those earlier contributions that will do the real heavy lifting. Of course people have to make their own decision about what their priorities are but the earlier you start the easier it is in terms of the monthly amount that you need to pay in because of this compounding effect, because of the heavy work that those early contributions will do for you.

Clare: So Sarah, let’s think about someone who has a set amount going into their workplace pension, now can they pay more into their pension if they wanted to?

Sarah: Yeah absolutely. So again I was talking earlier on about this minimum amount of approximately 8% of your salary that will be going into your workplace pension. But you can pay more in, and even a relatively small amount, you know an extra percent or 2%, can make a difference potentially to the mount of money that you’re going to get when you retire.

But you may also get some help from your employer if you do that. Quite a few employers will do what’s called marching contributions. So in that case if you want to pay in some extra, so say at the moment you’re paying in 4% of your salary plus 1% of government top up of tax relief that’s going in. Well if you could afford to pay 5, 6, 7% your employer will match that pound for pound. Now different employers have a different approach. Some of them may match up to a limit of 7% some 8, 9, 10. A few of them even higher. So it is really worth asking your employer – do you do employer matching? If so, what’s the limit? What’s the maximum I can put in with you matching that pound for pound? Now again as I said not all employers will do this but there are a couple of other options to think about.

So if you’re in the kind of job where you get a bonus then you can do something called a bonus sacrifice or a bonus exchange. And the way that works is that instead of getting your bonus paid into your bank account you give up some or all of it. Now that could be a percentage or you could decide to give up a certain amount, up to a certain limit. And in that case the bit that you exchange doesn’t end up in your bank account, instead it is paid directly into your pension by your employer. Now the advantage of that, apart from having more money going into your pension, is that you save tax and National Insurance on the bit that you give up and your employer saves National Insurance as well.

Now if you don’t get a bonus, there’s something called salary sacrifice, or salary exchange, that you can also do in a similar way. So here, you and your employer agree that you will exchange a percentage of your salary and again that money will go directly into your pension. So again it’ll save you some tax and National Insurance and save your employer some National Insurance as well.

Now these are just suggestions, I’m not giving advice, these are just things to think about. So salary exchange in particular it may not be right for everybody. So for example it will affect any salary related benefits that you might get. So we obviously hope that people don’t have to be furloughed in the future, but your furlough pay is based on your salary so if you’ve exchanged some of it, it will affect that. And again there are certain benefits that are maybe related to the amount of salary you get. So it’s just something to think about, it’s not necessarily right for everybody. But I would just say one thing which is, years and years ago I used to work for the BBC, a very very long time ago. Before you were automatically put into your workplace pension. The days when you had to sign up and go through the paperwork and join. And I did join the pension scheme quite early on. And I was paying, you know whatever it was, into my pension. And to be honest I didn’t really give it any thought as to whether it was enough or not. I was just kind of, I’m in the pension – job done. And then I started working on a personal finance programme on radio after I’d been at the BBC for a few months. And I guess if you can imagine, pensions were a hot topic. Previously I hadn’t really been somebody who found finance, pensions, that fascinating, it wasn’t something I spent my childhood and teenage years talking about. But I did find it interesting when I started working on this programme. And a couple of people were talking about their pensions and how much they were paying in. And they mentioned that they were paying in more than the standard amount, and to be honest it wasn’t really something I was aware you could do, and it certainly hadn’t really crossed my mind for me. But it was something I thought, I really ought to get my act together, because the way they were talking about it, it seemed to make a lot of sense. And it was something I did. And in some ways you can say, it is something I’m very glad I did. But it wasn’t almost like it was a conscious decision where I got out my spreadsheet and started to look at how much I’d need. It was really based on this conversation I had with a couple of my colleagues when they were like, well actually this is why it could be a good thing to do. So I think sometimes it’s thinking about your pension, there are unusual things that can trigger that thought process and conversation. But it’s definitely worth exploring employer matching, if you get a bonus whether bonus exchange is right for you, and as I mentioned salary exchange or sacrifice as well.

Clare: That’s great Sarah. Now just to finish off, what are the three key things that everyone should think about and take away from today?

Sarah: I think the first thing is this mindset shift, and I mentioned this idea of being or having your own financial independence day, and it’s something that really made a difference to me as to how I thought about my own retirement. So don’t think about retirement as being something that – in inverted commas – old people do, and you sort of shuffle off to the end of your working life. Start to think about, when do I want to not have to work to pay my bills? I can work if I want to, but when do I want to have my own financial independence day?

And again if you’re looking at money that’s coming into your salary and money that’s going out to your pension it can feel like you’re depriving yourself. You’re thinking, that’s money I could spend today. But again this is something that I’ve found really helpful when I’m thinking about either saving in cash savings account or my pension is instead of thinking about the money that I therefore wouldn’t have to spend today as being given up, it’s about buying myself options and choice further down the road. So whether that’s about having the ability to go on holiday without putting it on a credit card. Or being able to retire without having to live on the State Pension which our poll told us that 98% of people don’t want to do.

The second thing is to really think about the retirement lifestyle you’d like. So not thinking about it in vague terms, just really start to put some numbers against it. So I mentioned that Retirement Living Standards website. I talked about how financial advisers can help. And there’s calculators that we’ve got, and also there’s one on the MoneyHelper website.

And then lastly, if you’re in a workplace pension, don’t opt out of it if you can afford not to. Think about how much is going in and maybe look at ways that you could increase the amount that you’re saving, if it’s something that you can afford to do.

Clare: Okay, brilliant, so thanks for those three top tips and I totally agree that mindset shift is absolutely crucial. Now we’ve had questions coming in while we’ve been talking so let’s move on to them and see the type of things that we have been getting.

So, there are quite a few questions. Ah now! This is one that often I’ve come across and I know you’ve come across. So Amy says - I don’t really understand how tax relief works, can you explain it some more please?

Sarah: Yeah, Amy it’s a really good question, I’ll give it my best shot! I think one of the problems with tax relief is I don’t think the name really explains what it does. But the way to think about it is as a government top up in terms of the money that’s going into your pension.

So I think the easiest way to explain it is with an example. So assuming that you want to say pay £100 a month into your pension. If you’re a basic rate taxpayer you will have already been paying tax on income that you receive. But when you put that money into your pension the government effectively kind of gives you some tax back as a top up. So back to the £100 a month example, if you’re a basic rate taxpayer, and you want to pay in £100 a month, it will actually only cost you £80 a month because the government will pay in the other £20 in tax relief. Now if you’re a higher or an additional rate taxpayer then you can reclaim higher rates of tax, you can normally do that through your self-assessment form if you fill it in. It’s one of those things that you know, pensions does sometimes have some not very user-friendly jargon and I think tax relief is one of those things that doesn’t really explain what it does. But once you understand it, I think it’s really useful to think, every time I’m paying into my pension the government is paying as well. And it’s not every day that you get money from the government, so I think it’s definitely a good one to understand and think about!

Clare: Definitely and to just add to that as well that depending on the type of scheme you’re in you might have to, if you’re a higher rate or additional rate taxpayer, you might have to claim it back. But if you’re in a salary exchange scheme then that will automatically happen so it’s worth checking that if you are a higher rate or additional rate taxpayer.

Now the top question just now is – I have a number of pensions from different previous employers, should I combine them? And again this is a question we get asked quite a lot isn’t it Sarah?

Sarah: Yeah and I mean it’s one of those questions, it’s a really really good question and you’re going to hate me for saying this but there isn’t really a straightforward answer!

There are pros and cons and it’s the kind of thing that it’s a really good idea to get financial advice on, but ill just give you a couple of things to think about.

So reasons why it might be a good idea to combine your pensions. If you’re somebody who finds it hard to keep track of lots of different pots then it can be easier to see them all in one go. Having said that there is something coming down the track called the Pensions Dashboard which means that you’ll be able to see on one sort of, as it sounds, dashboard, all your pensions at the same time. So that’s maybe just worth being aware of.

Reasons why it might not be a good idea. In terms of where you’re moving your money to it’s always worth just looking at what the charges are, whether you’re giving up any existing benefits from your pensions. So some very old-style pensions have some specific benefits which can be quite valuable and if you were to give those up by transferring elsewhere then you could be worse off.

And it is worth saying, we’re talking about combining pension posts like pensions are all the same but there are two main categories of pension. One is what’s called a defined contribution pension which is what most people will be saving into these days and it’s where you pay in money, your employer does, you get this government tax top up and then you get a pot of money at the end that you can take money our of or convert into a guaranteed income. But a while ago a lot of people were in what was called a defined benefit or final salary scheme and there the amount the you get at retirement is linked directly to your salary rather than the pot that you have that you’ve been growing over the years.

So in this case, generally, thinking of combining a final salary pension with another one it’s generally a bad idea. Again, there can be some exceptions, but the starting point is often this is not a good idea and if it’s something you’re thinking about, unless you’ve got a very small pensions, you’ll normally have to take financial advice as well.

Again there is information about this on our website, there’s also information about it on the MoneyHelper website. But if you are thinking of doing it it’s a really good idea to take some financial advice first.

Clare: Okay so, next question is should I pay off my mortgage before increasing pension contributions? Now that’s another interesting one isn’t and it’s probably another one that there’s not quite a right or wrong answer, but Sarah what would you recommend – well we can’t really recommend – what would you say to that question?

Sarah: It’s a really good question again and I don’t want to frustrate people by saying there’s no easy answer, but first of all I’m not a financial adviser so I can’t give you advice, I can just give you some suggestions and things to think about.

So first of all I think it depends on how much your mortgage might be and whether it’s the kind of thing that might stress you at the moment. So we don’t know what’s going to happen to interest rates. Some people are on a variable rate, so for example if you’re on a variable interest rate and you’re worried about interest rates rising, you might think actually I’d rather get my mortgage down a bit if I possibly can.

Sometimes because of the way fixed rates are priced, you can get a much better fixed rate if you have a little bit more equity so you might think I’ll pay it down a little bit and I can qualify for a better fixed rate. Again that might be something to think about. On the other hand, I was talking about why how a bit extra into your pension potentially could make a big difference especially in the early years. So my thoughts would be it doesn’t necessarily have to be either/or. I think it depends on the size of your mortgage, what your plans might be, how much the mortgage is compared to the value of your property, whether you’re on a variable rate deal, how much headroom you’ve got in your budget if you are on a variable rate deal. Would you not be able to sleep at night if mortgage rates go up? But also think about the tax efficiency of pensions and the fact that if you are paying extra into your pension and you’re working, you’re employed, you could potentially get some more money from your employer if they do this matching.

The last thing I’ll just say and again this is not advice, this is just what I did. I did a bit of both, I did pay a bit extra off on my mortgage when I could, but I also like I mentioned earlier on, increased my pension contribution. Because although it was important to think about my mortgage it’s actually my pension I’m going to be living on when I retire, not my house.

Clare: Yeah, okay then, there’s a couple of questions that are sort of dealing with death. So what happens to my pension when I die? And there’s also another question about passing on pensions to children. Sarah, shall I pick up this question because this is certainly a topic which comes up quite a lot?

Now again Sarah mentioned this issue of the difference between the two types of pensions, so the pension when you save up and you have a fund on retirement that your employer’s contributed to, or final salary or defined benefit type pensions. Now the death benefits are quite different.

So what I would say is if you’re thinking, if you have a personal pension or a workplace scheme where you are contributing and you’re expecting this fund on retirement and you kind of choose what to do, then normally what happens is the death benefits if you died would go to the people that you would want them to go to.

Now what’s really important, and often people forget about this, is that there are forms to be filled in, and on that form you put down who you would like to receive the death benefits. Now obviously the older you are, the bigger the fund can be, and actually if you die when you’re under 75, your beneficiaries will get that money without paying any income tax. So it’s really important to fill in that form, to say who you would like to receive the benefits.

Now again it’s a bit of a tricky question because different schemes operate in different ways and you can ask exactly how it works, but that fund of money isn’t going to disappear when it’s sitting in your pension. In most scenarios it is going to end up with the people that you would want to receive it. But make sure you fill in these forms. So if you haven’t filled one in and you’re in a workplace scheme then ask your employer for one because it’s really important.

I know that certainly I would want to know that my family were going to receive the benefits so I’ve asked that my husband and my three children would receive the death benefits when I die because it’s important to me that they would all have a share.

I don’t know if there’s anything else that you’d like to add about death benefits, Sarah?

Sarah: No I think you answered that very well and because I’ve got a bit of a sore throat I was using the opportunity to have a glass of water so thank you for picking up that question!

Clare: So another question, should I be paying more into my work pension or running my own?

Sarah: Again, we’re getting some great questions so thanks so much to people who are submitting questions, and also who are voting the questions up, so I’ve seen some that we’re getting in, the popular questions. It’s really appreciated.

As I said really good question. So I think in terms of whether to pay more into your workplace pension or to have your own, I mentioned the extra benefits that you may get from your employer. So if they do this matching of contributions. So again this is not advice, but my starting point would be to start with my employer, find out whether they will match contributions up to a certain limit if I pay extra. So every pound you pay you’ll get a pound from your employer.

Also think about whether you can use this bonus exchange or salary exchange because that’s quite a tax efficient way of paying extra money into your pension. There may be reasons why you might want to run your own pension. It’s normally to do with if your workplace, if you want to invest in a certain kind of fund that your workplace pension doesn’t offer. But I would just say one word of, well not quite caution, which is maybe one thing to explore before that. The vast majority of people who are in a workplace pension are in what’s called a default fund. So basically that’s the fund that you’ll be put in to if you don’t actively decide to put your money into a different fund.

Default funds can vary from one workplace pension provider to another, but I think the bigger point is that if you are in that default fund, or even if you’re not, your workplace pension may offer funds that you weren’t aware of or that you haven’t though about switching your money to. So if it’s about thinking, actually I want to handle my own pension because I want to invest my money in a certain way, then maybe look at your workplace pension first just to be sure that they don’t offer that option. Because what you may be able to do is split your money and have some of it going into one fund and some going elsewhere, so that’s definitely something I would think about

Clare: Okay now I’m just flicking through the questions, we’ve only really got a minute left. There’s an interesting one that’s come up with someone who’s a stay-at-home mum, Sarah. And I think it’s important to think about this as well because there are quite a lot of people who don’t. So they’re asking - should they set up a private pension while they’re not working? Sarah, did you want to just pick that one up as the last question?

Sarah: Yeah, again really good question. There’s a couple of things to think about. Firstly, under the rules you’re allowed to pay in up to 100% of your salary or £3,600 a year into a pension, whichever is the largest. Now if you’re not earning at all that means you’re allowed to pay in up to £3,600 a year. Now that figure includes tax relief, so just because you’re not earning doesn’t mean you can’t benefit from this tax relief, this government top up that I mentioned earlier on. So again I just think it is worth thinking about that even if you’re not working and you don’t have earnings, there may be ways that you can save that mean you benefit from that tax relief.

The other thing is it is possible for one person to set up a pension for another. So it’s possible for example for grandparents to take out a pension for a child, or for a husband to take out a pension for a wife or partner or vice versa. So there are ways that it’s possible for you to benefit from having money going into a pension and getting that tax efficiency. You don’t necessarily need a salary or income to do so.

Clare: That’s great Sarah. Well, I think we’re almost at the end of our time today. So thank you so much to Sarah for answering all those questions today. And thank you for watching and submitting such great questions. Now, sorry we didn’t get to all of the questions but hopefully this session has helped you in planning and saving for retirement. We will read all of the questions though and look at the ones we didn’t answer, and we might use them to help shape future webinars.

So thank you again and have a good day!

Sarah: Thank you.

ng us today.