Everything you want to know about your workplace pensions but were afraid to ask

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 on the 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.