How to make the most of your workplace pension

My name's Jonny.

Hi, I'm Rachel.

Welcome. For today, we've got two fun-filled packed days for you. I'm really excited.

Fun-filled?

Yeah. Pen-

With pensions?

Of course we have. Rachel, what have we got in store for everybody?

Okay. Well, this morning, I'm sure as you all know, what you're here for, how to make the most of your workplace pension.

And then a bit later today at 12.30, we've got should I bring all of my pension pots together?

Yeah.

That big question.

3.30, we've got Money Helper, how can it help me?

So that's today's lineup. Do you want me to tell you about tomorrow?

Well, we'd have to go for tomorrow, but you can go on the website.

I was going to say, if you're here, make sure you go to our website.

If we can bring our website up,

I'd love to show you our new website that we've created just for you.

So, on the website, you can do loads of stuff.

Obviously, we want you to book onto the shows.

If you see some new shows that you're not aware of, make sure you book onto them here. You can do it really easily. If you go down the page, me and Rachel, we've created a fantastic two-minute interactive PDF checklist that will help you get to grips with your pensions.

There's some really good fun things in there, isn't there?

I think, yeah, if you're not sure where to start, that is your best place to go.

Follow through the steps, and it'll help you get to grips with your pension and just where to start. And also on this website, we've got some great articles and also useful links. So throughout the shows over the next two days, our special guests are probably going to say some useful links from Money Helper and things like that. And if you need to know where they are, all the great links are also on this website. And the biggest question that we get actually isn't about pensions.

What is it?

It's about, can I watch these shows afterwards? But you can. It's on catch-up, so you can watch them on there on catch-up.

I think you forgot to say the biggest thing.

What's that?

What is today?

It's Pension Awareness Day.

Happy Pension Awareness Day. Yay. Of course.

The day, September the 15th, where it gives you zero excuse-

That's it. This is the time to not check your pensions today.

No more putting it off.

No.

This is the time.

Well, with no further ado, let's introduce our special guest today from Royal London, Sarah and Justin. Over to you.

Hello, Jonny. Hello, Rachel.

Hello.

Thanks, Jonny. Good to be back again. Pensions Awareness Day as well.

If there's a better day to do a webinar about pensions, I do not know what it is.

Agree wholeheartedly. Yes, looking forward to it.

So yeah, if you haven't dialled into one of our webinars before, I'm Sarah Pennells, and I'm the consumer finance specialist at Royal London.

And Justin.

I'm Justin Corless, and I'm a pension specialist at Royal London.

And today, we're going to be looking at workplace pensions.

Wait, one second. Workplace pensions?

Can you do it one second? What are workplace pensions for people out there who may not know about workplace pensions, Sarah?

Yeah, Jonny, it's a really good question, but I think before we start talking about workplace pensions, let's just remind ourselves of what a pension is. Now, a pension, pension geeks know this already, a pension is not like an ordinary savings account that you can sort of dip into as you need to. A pension is there to provide money for you to live on when you retire. It's that simple, kind of.

But because a pension isn't like a savings account, it's there for your retirement, you can't just take money out of it when you're in your 30s or 40s. In fact, you have to be at least aged 55 to take money out of your pension, and that age limit is rising to 57 by April 2028.

That's right. Now, when it comes to a workplace pension, that's a pension that's set up by your employer.

So if you're an employee, you will be automatically enrolled into your workplace pension by your employer as long as you meet three conditions. Now, the first of those is that you need to be aged at least 22, and you need to be under State Pension age.

Now, State Pension age is currently 66 and a bit.

Slightly odd. It was 66, but from April this year, it began increasing. It's going to be 67 by April 2028. So our second condition is that you need to work in the UK, and the third is that you need to earn at least £10,000 a year. So far, so straightforward?

Kind of.

Well, except that it's pensions, so of course, it's never completely straightforward. If you have multiple jobs, let's say you work perhaps part-time, that £10,000 a year earnings threshold applies to each individual job that you have, not the grand total that you earn each year.

So let's say you had two jobs, and you earned £10,001 in each of them, then you'd be automatically enrolled into two workplace pensions. But if you had two jobs, let's say you work part-time again, and you earned £9,999 in each of them, you wouldn't be automatically enrolled into a workplace pension at all.

But here's the clever bit. If you earn less than £10,000 a year from one of those jobs, you can ask your employer to put you into the workplace pension scheme, and as long as you earn more than £6,240 a year from that job, they have to pay into it as well.

Now, automatic enrolment just means that you are put into your workplace pension scheme, as Justin has been saying, without you having to fill in any online forms or anything like that. But you are not forced to stay in it. You can opt out if you want to. Now, there are lots of rules and regulations around automatic enrolment. So for example, they say that very approximately about 8% of your salary has to be paid into your workplace pension every month. Now, you pay some of that, your employer pays some, and the government pays some as well.

Now, the way it breaks down is that you pay 4% of your salary into your pension, so that's from your salary, your own money. Your employer pays 3%. That's money that comes from them. They don't take it from you.

And the government tops that up with basic rate tax relief, which is 1%. Now, here's another tip, and we will be talking about this in more detail later on. These are just the minimum amounts, so you can pay more into your pension, but often employers may do that as well

Now, when it comes to tax relief, that's just a piece of jargon that just makes people's eyes glaze over, doesn't it?

But do you know, whenever I've explained it to somebody, they've normally gone, "Oh, wow. Actually, that's really good. I didn't realise." So perhaps the best thing we can do is to explain that with an example, so we'll have a slide on the screen just now. Okay? So let's say you wanted to pay £100 into your pension. If you're a basic rate taxpayer, then you need to pay £80 in, and the government will top that up with that additional £20. That's called tax relief.

If we've got that slide up just at the moment, if you are a higher rate taxpayer, then you're going to get tax relief at 40%, which you can see on the second column on the slide there. But you might not get that difference between 20% and 40% tax relief automatically.

You may need to claim that back from HMRC via your self-assessment tax return.

Now, if you don't fill out one of those, don't worry. There is an online form that you can complete that will claim that tax relief back for you. Now, there is a limit to the amount of tax relief that somebody can have. Okay?

Should we lose that slide? What do you reckon?

Yeah, we could probably take that off just now.

Yeah, this slide.

Yeah, absolutely.

So, there is a limit to the amount of tax relief that somebody can have. For most people, the maximum that they can pay into their pension and get tax relief is their earnings. 100% of their earnings? What would they live on, Justin?

Absolutely. That is a very good question. For most people, that's not going to be possible, is it? Because they wouldn't have any money left over to buy food or pay bills or that sort of thing. But the rules do allow it. So let's say you earned £40,000 a year. The maximum that you could pay into your pension and get tax relief on it would be £40,000, and that is based on your earnings alone. However, if somebody doesn't have any earnings, they can still pay £2,880 into their pension each year, and with that government top-up, that will take it up to £3,600 going into your pension. And anyone can have a pension, okay? Even children. Can you imagine the little one's face, Sarah, when you let them know that they had got a pension for their birthday? They'd be delighted, wouldn't they?

And Jonny, I don't know whether this is something that maybe people aren't aware of, that you don't actually have to have earnings to pay money into your pension and that anyone can have a pension. You don't have to be a grownup.

You can be a child. It's just one of those things maybe people don't know.

Sarah, funny you should say that.

Yeah.

Until recently, I didn't know that. We were in a show, and we found out that children can have pensions. It seems a bit crazy. When I think of pensions, what do you think of? Old people. Well-

Yeah.

I'm getting there. Old people. Sorry. I mean but yeah. We love pensions, but we're plainly not old.

Really? But I think in this show that we're saying, a person said if you put potentially some money into your child's pension really early, when they come to retirement age, now I might be wrong, Sarah, but they could potentially have a million pounds in the pot. Is that true?

Yeah. I think with all these things, it depends on all sorts of assumptions, how much you put in and how much they grow by.

But definitely, I think the key message is the earlier you start, and it could be we're often talking about automatic enrolment and it being you're enrolled once you're 22. But for some people, actually, if someone pays into a pension for them, that could get them a really good start when they come to retire.

That's absolutely true. And we often hear about grandparents paying into grandchildren's pensions just to give them that start early on and lots of time to grow. Now, just back to that tax relief point, I should have mentioned that there are different rates of tax in Scotland. So for example, higher rate tax is 42%, not 40%, but I guess the more tax you pay, the more tax relief you get and more money going into your pension.

So if there is a silver lining to pay more tax, it's that you get more tax relief. Now, here's just a quick tip. Okay?

If you are a higher rate taxpayer, and particularly if you are just over that higher rate tax threshold, making a pension contribution will reduce your taxable income, and it might be able to do that by enough to take you into a lower tax band.

Yeah. So let's just have another slide so that we can talk through this example. So in this example, our person has a taxable income of £51,270. Now, the higher rate tax threshold is £50,270, so they're £1,000 over that tax threshold. Now, Justin was mentioning about tax rates in Scotland, so if the person was living in Scotland, then the tax rates would be different, but the principle is the same.

So let's look at the tax they pay. There's no tax to pay on the first £12,570 because that's their personal allowance. Now they pay £7,540 on the next chunk of earnings, and then on that final £1,000 of earnings, they pay tax at 40%, so that's £400. But here's the clever bit.

If they were to pay £1,000 into their pension from their own money their taxable income would now be £50,270, so not over that higher rate tax threshold. So they would have saved £400 in tax, but they would also have £1,000 in their pension they wouldn't otherwise have

And this can be really useful if you want your income, your taxable income, to be below a certain level, for example, to qualify for things like child benefit. I think we can get rid of that slide now. Thanks very much.

It's a great benefit, though, isn't it?

Being able to manipulate that income with a pension contribution.

Yeah, it really is. And also, if you're in the lucky position to earn more than £100,000 a year, then by doing this, you could potentially keep that personal allowance, which otherwise disappears.

Now, so we talked a bit about what a workplace pension is, and Justin has explained a bit about tax relief. But there are two different types of workplace pension, and again, I think it's really worth explaining these because there is some confusion about this.

Now, we did some research very recently actually, with 3,500 employees with a workplace pension, and we looked at those who are currently paying into workplace pension, and this really staggered me. Over a third, 34%, didn't know what kind of workplace pension they were paying into. So let's clear that up.

The first kind of workplace pension is a defined benefit pension. Now, that's the kind that these days you are much more likely to see in the public sector. And a key feature of the defined benefit pension is when you retire, you get a regular payment until you... well, as long as you live. It'll be like getting your salary, but obviously you will get less. You might have heard the phrase final salary pension, but there are other ones, such as a career average pension as well. The amount you get depends on how long you've been in that pension scheme for and the level of your salary.

It's also worth saying if you have a partner who outlives you, then they'll normally get a payment as well.

The second kind of pension is a defined contribution one.

Now here you build up a pot of money that you will then use to generate an income when you retire. Now we're going to focus in this webinar on this kind of pension. Now it has the other feature that you can often take money out of it before you stop work if you want to.

The reason we're focusing on this kind of pension is it's much more likely to be the kind of pension that you're paying into.

So Jonny and Rachel, I don't know if you want to guess. How many more people do you think are paying into a defined contribution pension compared to a defined benefit one? What percentage would you say?

We're prepared to take one or 2% either way, Jonny.

Well, I think it's a big contribution now of people paying into a defined contribution just because of workplace pension. A lot of employers have to do it now.

So I would say probably about, I'm going to say 80%.

I was going to go a lot-- I was going to go 70%. 70%. Can I go with Rachel's answer, please?

No, you can't change now.

Okay, we'll go 75 in the middle.

Okay. Well, you're sort of, you're both wrong.

Thank you.

But you're not far wrong. So our research showed that twice as many employees with a workplace pension were paying into a defined contribution one compared to a defined benefit. So that would have been about 66/33.

But again, it just shows you how many more are now into these pension pot type of pensions, which we're going to be focusing on.

Yeah, that will have changed a lot from even just a decade or two ago, won't it?

Indeed. Yeah.

Now, one of the key features of a defined contribution workplace pension is that you're in control of where those contributions are invested.

So broadly speaking, the money, the contributions that you pay into your workplace pension, along with those that your employer pays in, along with the tax relief that you get, are invested.

And that means that they go into investment funds, which in turn invest in things like companies by buying shares in them or loaning them money, or in things like government debt that you might have heard referred to as government bonds, yeah, or gilts if they're UK government debt, and other assets as well.

For example - property. Property. It can be commercial property. Yes. And that can be anything, can't it?

From a shopping centre to a supermarket. Okay?

But just by way of example of the range of different investments that you could be invested in your workplace pension, have a look at the slide that we've got on screen just at the moment, to show the examples of various different options that there are, and there's a few of them there.

Now very pretty slide.

It is pretty, isn't it? Yes. Now, the key point really is that it's not just invested in company shares, but often in a number of different assets as well.

Okay. So I think we'll get rid of that slide if that's okay. I think it's time for our first poll, if that's okay.

So, can we bring up this first poll?

So this is asking you a bit about what happens to your pension money. So, we'd just love you to vote in our poll. So let me know when that's come up, Jonny.

So if you are in a workplace defined contribution pension, then unless you actively decide where to put your money, it will be invested in the default fund.

Now, that will be a fund that's provided by your pension provider.

Now, pension geeks will probably know this, but what you may not know is that the makeup of a default fund can vary from one workplace pension scheme to another. And that's because a default fund has to meet the needs of the vast majority of the workplace pension scheme members.

Now, most people do have their money, most workplace pension scheme members do have their money invested in this fund.

And if you're happy to leave your money where it is, then you don't have to do anything.

But if you want to, you can transfer your pension money to another fund or funds offered by your workplace pension provider.

Now, you might want to do this, for example, so that your money's invested in line with your beliefs or principles. So perhaps you want to invest your money in a sustainable fund or in a Shariah compliant one.

Or perhaps you want to take more or indeed less risk than is taken by the default fund. Now- The important thing to bear in mind is the amount of risk that you're comfortable taking and the level of risk that's associated with the fund or funds you want to transfer to.

Absolutely. Now, it's a-- Sorry. I don't know if we've got the results of the poll yet.

Oh, that would be great. Yay.

I'm happy to say we have. So great poll.

So the results of the poll is, do you know where your workplace pension is invested?

Well, 57% of us have said, yes, it's in a default fund.

Fantastic.

That's excellent.

Yep. 9% of us have said, yes, a fund. And 32% have said, no idea.

Okay. Well, hopefully, there'll be a bit more information in the next few minutes that will kind of fill in some of those blanks, but thanks for that. No problem.

Now, when we think about risk, risk can be a pretty tricky concept to try and think about, can't it?

More risk can mean more growth, but also a greater chance of your pension fund falling in value. So if you were thinking of moving to a riskier fund, you would need to be comfortable with the idea of your pension fund falling in value, perhaps sharply, because quite simply put, riskier funds are more volatile. And by that, I mean they move up and down in value more regularly. Now, the hope is that over time, those ups and downs, smooth out and, well, hopefully, you get more ups than downs as well, don't you?

And if that were the case, then you should get a greater return than if you'd left your money in a fund taking less risk. But of course, there's no guarantee that will be the case, is there?

And as with all investments, you could get back less than you had paid in. Now, with a pension, you are investing for the longer term though, aren't you?

Yeah.

So you are likely to have, even though the ups and downs of the stock market can be unnerving, you're likely to have more time to ride that volatility out.

Could be 10, 20, 30 years.

It could be 10, 20, 30 years. Could be even longer, depending on your age as well, couldn't it?

So I guess my top tip here would be if you are, say, five years or more from the point that you can or will take your pension benefits, focus more on investment fund performance over two years than you do over two weeks.

Now, if you are thinking of moving your pension money, then it's to a different fund, then it's the kind of thing that a financial adviser can really help you think through. Now, you may not have a financial adviser, particularly if you're younger. But if you want to find out how to get one, then there's an article on our website, royallondon.com, on how to find a financial adviser and a link to some of the adviser directories.

And there's also information on the independent and government-backed Money Helper website on pensions and investment funds, and that's at moneyhelper.org.uk.

Excellent. Right. Do you know something else that we're asked a lot about is transferring your pension, isn't it?

All the time.

Yeah, pretty regularly. So I guess we should spend a couple of minutes looking at that. You might also hear it referred to as consolidating your pension. So if you are thinking of transferring or consolidating some of your older pensions, there are a number of factors that you would need to consider.

Now, we probably should stop at this point and just emphasize that we are not financial advisers. So we can't advise you on the best course of action to take. But as far as the pros and cons of transferring go, there are a number of factors to consider, aren't there? Now, I would say one reason that many people choose to transfer their pension is it can make it easier to manage their pension fund.

If you've got a handful of pensions from a number of jobs that you've had in the past, it might make it easier to keep track of how they're building up if they're all in one place.

But, and this is a big but, okay, there are other factors to consider as well. One of those would be charges.

So it can be worth moving to a pension that has lower charges, but cheaper isn't necessarily better.

You might be quite happy paying a little bit extra for features that are important to you. Now, another area to consider is that of the investment funds that are available.

Now, we've already talked about where your pension money is invested and the fact that you don't have to keep your money in the employer's default fund.

Most workplace pension providers will offer a range of different funds that you can invest in.

Some will have more than others, and some might have a focus on things like responsible investment that I think you mentioned earlier, Sarah, and that might be really important to you.

Now, the last point that I'll touch on as a common reason why people will consider transferring is if one or more of their older pension plans has restrictions as far as what you can do with that money when you come to retire. So, for example, you might only have the option of taking it out as a lump sum or as an annuity, or you might not have access to something called drawdown or income drawdown. Ignore the jargon. It's just a flexible way of being able to take your pension money.

So a couple of top tips with that. If you are thinking about transferring or consolidating your pension, consider the charges of not just the plan that you're in, but the one that you're transferring to as well. If you move to a more expensive pension plan, that can make a bigger dent in your ultimate retirement income.

And of course, also consider the fund options that are important to you and any other features of the pension.

Now, it's worth saying that bringing your pensions together doesn't mean they'll necessarily do better than if you left them where they were. And if you have some kinds of pension, particularly if you've got older pensions, they may have some valuable guarantees and features, such as a guaranteed annuity rate or value.

And there are some situations where you can't transfer your pension. So if you are in a public sector pension, and it's for, say, the NHS scheme, the teachers, police, firefighters, you can't transfer simply because there is no fund for you to transfer. And the reason is, the money that you pay into your pension today goes to pay today's pensioners.

There is one exception to this, though, which is the local government pension scheme, and there is a fund there, but it is generally recognised to be a bad idea to transfer from this. Now, again, if you are thinking of combining your pensions, there is a webinar at half past 12 today which will be talking through the pros and cons of this.

It is the kind of thing that, again, a financial adviser can help you with, so it's worth taking advice if it's cost effective. And there's also some information about transferring.

There's a whole section on this on the Money Helper website.

Yeah, it'd be worth watching that webinar this afternoon.

Definitely.

I'm looking forward to it, actually. Right.

The next point to touch on is that of salary sacrifice.

Now, you might sometimes hear that referred to as salary exchange. Don't worry.

They're just two names for the same thing.

Do you know what it's worth? Jon, there's been a lot about salary sacrifice and changes that are coming, and we're going to be talking about this.

But again, is this something that comes up, or is this something that you become more aware of as it's been in the news recently?

Yeah, certainly. We hear quite a lot about salary exchange. And also, it's called two different things, salary exchange, some people call it salary sacrifice.

Yeah.

So we do hear a lot about it in our conversations in the workplace.

But just on salary sacrifice alone, I always find it a tricky subject to understand.

I don't know if you feel the same way, Rach.

Yeah, absolutely. Yeah, it is. I think the name makes it tricky, doesn't it?

Yeah.

It can be, yeah. And I agree with the two names complicates it further, doesn't it?

I kind of use them interchangeably, to be honest with you, so they mean the same thing. Now, as mentioned, in the last budget, the Chancellor announced changes to salary sacrifice that will limit the amount of pension contribution that can get the full benefit of salary sacrifice. And those changes are due to come into force from April 29.

Yeah, absolutely. So a little way off, but certainly something that we should be aware of as well. Right. So I think, before we go on and explain those changes, we should cover off how salary sacrifice works. We're going to do that with an example with our workplace pension policyholder, Louise.

Another slide, please.

That would be great. Thank you very much.

Okay. Now, in its very basic terms, what salary sacrifice does is it sees you give up some of your salary in return for your employer making your pension contribution on your behalf.

That's kind of how it works. Now, I do appreciate, and in this example, there are a lot of figures.

Try not to focus too heavily on the figures, and instead, rather on the outcome of before salary exchange or after using salary exchange. See, I use them interchangeably instead of salary sacrifice. Okay, so if we start by looking at the left-hand column, before salary sacrifice, we can see that Louise has a headline salary of £35,000 a year.

She pays tax and national insurance. She makes a pension contribution herself, £1,400 a year. That's £1,750 with tax relief. Her employer pays in £1,050 a year. And you see that her take-home pay is £27,320 a year.

After salary sacrifice, so moving across to the right-hand column now, we can see her headline salary is lower it's just over £33,000. She makes no pension contribution anymore because her employer now makes that on her behalf, and her take-home pay is still £27,320. So I guess it begs the question, why would Louise do this?

Well, the answer, as we know, Sarah, isn't it? It's because of the extra pension contribution.

It's all money in her pension, happy days.

It is happy days, isn't it? Okay. And that's predominantly due to the national insurance saving and tax saving that she makes.

So if you look on the right-hand column towards the bottom, you will see that after salary sacrifice, she has £3,286 going into her pension every year rather than £2,800, okay, and that is £486 extra, if my maths is every year.

Now, your employer may redirect some of their national insurance savings into your pension as well, which is what's happening here with Louise.

But even if they don't, there is still a saving that Louise would be able to make. Now, it is possible, and some people choose to do this, that rather than having extra money go into their pension, the same amount goes into their pension, but that means that Louise, in this instance, would have a slightly higher take-home pay.

Now, I do understand that that can be appealing. But we need to remember that your pension is your bank account for the future. And while paying a little bit extra just now might not make too much difference with compounding, that pension geeks will have heard us say before is the magic of time, it can make a big difference when you do come to retire.

Now, I should just say that salary sacrifice does involve a change to your contract of employment, and you do normally have to stay in that for 12 month period. Okay.

But salary sacrifice is useful for most people, and if your employer offers it, then they will let you know of instances where it's not suitable for you. For example, you can't reduce or sacrifice somebody's salary below that of the National Living Wage.

Now, if you get a bonus at your work, your employer may offer something called bonus exchange.

Works pretty much the same as we've just explained, except it's a single payment.

Great. So I think we'll get rid of the slide now. Thank you for that.

So Justin mentioned those changes that are coming in from April 2029.

So let's just talk through those. The change means that there will be a limit on the national insurance saving that an employer and an employee make, and that will be capped on the first £2,000 of salary sacrificed. Now, this may not be ideal, and for some people it might mean they pay less into their pension.

But let's just sort of clarify it, because I think there has been some confusion about this. It doesn't mean that it limits the amount that you can pay into your pension through salary sacrifice. What it means is that it  limits the national insurance saving to that first £2,000. So let's have a quick example we're just going to run through.

If somebody earns £40,000 a year and pays 5% of their salary into their pension, then their pension contribution would be £2,000 a year. So they won't be affected by that new cap that's coming in.

But if you are a higher rate or an additional rate taxpayer, then salary sacrifice is useful even if you pay more in beyond that cap of the first £2,000 of salary sacrificed.

And the reason is that if your pension contributions are through salary sacrifice, you don't have to claim back that additional tax relief, and that's because your employer makes pension contributions from your gross salary. So by that, I mean before tax is taken off. And that is really important because so many people forget to claim that additional tax relief back.

Yeah, it's a really good point. So as Justin rightly says, there are a number of people who, for whatever reason, don't claim that additional tax relief.

But if your pension contributions are made through salary sacrifice or salary exchange, you don't have to worry about that.

Now, just before we finish, a few tips on making the most of your workplace pension, because we're sort of often asked about this.

Now, we said right at the start that starting early is really one of the things that pension geeks will be talking about and have talked about.

Automatic enrolment really does a lot of the heavy lifting with this because you are put into your employer's workplace pension scheme as long as you're age 22 or over and meet those other criteria.

So I guess the message is firstly about not opting out and secondly about minimising those breaks in your pension contributions throughout your working life, if you can.

Now, we have an example here. Can we have another slide? Thank you very much.

So this slide shows the effect of someone having a break in their pension contributions of five years while they're in their mid-30s. Now, I know this is the kind of time when some people, and let's be honest, particularly women, will take time out of the workplace to bring up a young family.

But it could be because you want to care for a relative or elderly parent or whatever. Now, people have to make decisions about their life, and we get that. But you can see in this example, you could end up with £50,000 less in your pension than if you didn't have those breaks. Now, Justin mentioned at the start that you can pay up to £2,880 a year into your pension without having any earnings. Now, you may not be able to afford that, but anything that you can pay while you're not working could help to mitigate that gap from taking a pension contribution break.

So can we lose this slide now, please? The other thing is, you might know that you're planning to take some time out of the workplace, maybe in a few years' time.

So perhaps in those years in the run-up to that, you could pay a bit more into your pension. Anything you can do, basically, to kind of mitigate the effects of not paying into your pension for a period of time.

That's a really good suggestion, isn't it?

The next point that I would normally raise in a set of tips to maximise your pension just now would be salary sacrifice, but I think we've already covered that, so I shan't do it again other than to say it can be a very valuable tool. Okay, perhaps the next one that we should touch on is that of employer pension contribution matching. So some employers, if you increase the percentage that you're paying into your pension, they will be happy to match that pound for pound, usually up to a certain limit.

Now, I am going to run through an example. It's not the one that we've got on screen at the moment. I'll come onto that in just a second. But I'm going to run through an example.

Now, I do apologise. I try to normally keep figures out of or not have too many in them in these examples, but there are a few figures coming your way. I'm afraid it's just the easiest way to explain it, isn't it?

Yep, indeed.

Okay. So let's imagine for a moment that you were paying 4% of your salary into your pension, you were getting your 1% tax relief as well, and your employer was paying in 3% of your salary into your pension as well.

If you were in a position to be able to increase your pension contribution, let's say you took that up to 6%, if your employer does employer contribution matching, they would also put 6% of your salary into your pension as well.

That would make 12% overall. With me so far?

Kind of.

Okay, yeah, right. That will do. I'll take kind of. The key point there is that you only need to pay in 4.8% of your salary because the employer contribution and the tax relief will make up the rest of that 12%.

Okay. I think, Jonny, it's time for our second poll, if you're able to get that poll up.

Yeah. Before we do that, I just wanted to say, if people want to get involved with the poll, there is a button at the bottom under the chat. You've got Chat with an icon, you've got poll with an icon, and you've got Q&A. If you click the icon with Poll on, it'll come up.

I know people couldn't interact with it last time because they couldn't find it. But if you click that, you'll be able to interact with the poll this time.

Great stuff. Thank you, Jonny.

Right. Well, I'll look forward to that coming through.

Okay, so the last point that I think we'll touch on as far as tips to maximize your pension is increasing your pension contribution alongside a pay rise.

Now, I do appreciate, don't we, that there is still a cost of living crisis going on.

Yeah.

So this might not be possible for everyone. But if you could increase the percentage that you put into your pension, even by one percentage point, let's say from 5% to 6%, even every five years alongside a pay rise, it can make a considerable difference when you do come to retire. And if we can have a look at that slide, we can see on there that you could have almost an extra £172,000 when you come to retire just by doing that. So look if you can make use of all four of those tips that we mentioned, that would be brilliant, but even if you could just use one of them, it could make a significant difference when that day comes when you no longer have to set the alarm to get up for work on time.

So Jonny, I don't know whether you got the results of that poll, because that's it from us.

Yeah.

That's our tips.

Let's get to the poll.

You've emptied our brains.

Yep, so I can give you the... Well, before we get into the poll, thank you very much to both of you for that. Hang tight because we have got some questions coming from the audience in a moment.

We have.

But let me just tell you about the poll. So, do you pay extra into your pension?

So, yes, via regular contributions, we've got 51%, yes, on a one-off lump sum, 4%, and no, 43%. So that's very interesting. Very interesting.

Yeah, it's quite encouraging though, isn't it?

I think that's really... yeah I think that's really positive.

More than half of people are paying more into their pension, which, as we've said, it is tough. We've had the cost of living crisis going on for what seems like many, many years. So I think that's brilliant, and everybody should give themselves, frankly, a round of applause or cake or a pat on the back, or all three.

Well done. Well done. Well done. Great.

So we're going to go to the part of the show now, we've got about five minutes, just over five minutes, where we're going to answer your questions.

So we have your questions. People think this show isn't live. It is live. It is live. Promise you.

Promise you, we've had lots of technical hitches around it to prove it's live. So, yeah so it is live.

So, we're going to go straight to the questions. Rachel?

Yeah. I'm going to go actually, leading into that poll nicely, a nice segue, where we've spoken about are people paying more in.

Well, actually, a big question that came up, we've spoken about auto-enrolment, the legal amount being 8%, but is there any guidance on if you do want to pay any more in, what roughly should people be aiming for?

Look, it really will depend on what you're aspiring to as far as a retirement income goes.

So there's not a universal answer that's correct for everyone, but what I would suggest is using tools such as those on things like the Money Helper website or perhaps with your pension provider, they might have a tool as well, that helps you model how much extra that you paid in and what that would likely mean as a fund value when you do come to retire. So there are tools out there. I would be trying to make use of one of those.

Obviously, if you can, take financial advice, that will help as well. A financial adviser would be able to explain that to you.

But, if that's not cost-effective, there are tools.

And I think in some ways it would be really nice if there was a one figure and we could say, "Pay this much in," but one of the reasons it's difficult to answer that question is it depends when you want to retire, and some people want to retire when they're 60, others want to carry on working till they're 75, and the kind of lifestyle you want when you retire. And there's another website called the Retirement Living Standards, which gives you an idea of the kind of lifestyle that you could have in retirement based on certain incomes or the kind of income that would pay for a certain lifestyle. So I think you have to almost start at the end and work backwards and think, "When do I want to retire?" Or, "When do I want to not have to work to pay my bills? I may not want to retire, but when do I want to be free of that pressure of having to work?" And then, "What's the kind of lifestyle I want?"

And then you can start working backwards.

Thank you both. That's really helpful.

Also staying on the same sort of topic, from a practical point of view, if you are looking to maybe, there's a few questions around, how do I actually go about increasing my pension? And also, there's a few questions around, how do I actually check how much I'm paying in, how much my employer's paying in, and whether there's such things of matching that my employer's offering?

Is it as simple as just going onto the app or the website? How do you check on that? Would you like to begin with that one, Sarah?

Yeah, so I mean, normally when you join your employer's workplace pension, you'll be given a whole load of information.

As you say, a lot of pension providers have apps now where you can access information, but they won't necessarily tell you the employer's policy. So they will tell you things like how much you've paid into your pension, how much you're maybe on track to get, the funds you're invested in, whether you've made any extra contributions, and so on.

So it's really your employer's website, they will have the benefits portal or whatever it's called.

They should have information about what they're paying in and how you can pay in extra. Now, again, we've done some research over the years into workplace pensions, and it shows that a lot of employers do offer employer matching, and it's partly because they recognize it's a really good benefit to offer their employees for that employee loyalty. So if you haven't thought about it before and you can't find any information online on your benefits portal or whatever, contact the pension specialist or the HR department, and they should get that information.

Well, that's absolutely right. And of course, you will also receive an annual statement that comes out every year, and that should have similar information to that which you can find on an app if your pension provider or your workplace does have one of those.

Yeah, so I think it is really important to also touch on the fact that In some of that research that we've done recently around employer contribution matching, far too many people weren't aware whether their employer did offer contribution matching, and it's so valuable if they do.

And there were people who did know that it was being offered and weren't taking advantage of it, and that's something that you'd really want to revisit quite regularly to see if that was still the best decision for you.

Yeah, because obviously, as Justin says, it does mean you paying extra money into your pension, but you also get free money from your employer.

And it's not often we say the phrase free money these days, so worth getting a hold of.

Lovely. Thank you very much. I'm going to move over to this question then.

So we've had a few questions around, we've mentioned defined contribution and defined benefit pensions. People wanted to know, how do you actually know or how do you check what type of pension you've got?

Probably the first point will be to ask your employer if you're unsure. It will be fairly apparent in any app or pension statement that you receive. It should explain whether or not it is a defined benefit or a defined contribution scheme.

One of the key indicators is that if it is a defined contribution pension scheme, you are building up a pot of money. So we'll talk about a pot of money that's being built up. With defined benefit schemes, they normally talk about an amount of retirement income that you're going to receive each year when you retire.

Yeah. So it may not say you are in a defined contribution pension, but as Justin said, if there's any reference to an investment fund or your contributions are invested in this fund or funds, that tells you it's a defined contribution fund.

Because although defined benefit pension money may be invested, it depends on the kind of scheme, you don't have any choice about where it's invested.

So it won't give you that information about, oh, it's invested in this fund or that fund, because you don't have any say in it.

So if looking at your app or your pension statement, it says your pension fund or contributions are invested in this fund, it may be several funds, that's how you know you're building up a defined contribution pension. And it will also tell you at retirement you could receive this much, and that will be a fund value.

So it will be hopefully hundreds of thousands of pounds. It certainly won't be hundreds of pounds.

And it'll be talking about a pot of money, and as Justin rightly said, if you've got a defined benefit pension, so maybe a final salary or career average, it will be talking about an amount per year because you're not building up that fund in the same way.

No, you're not.

Lovely. Thank you. Okay, we're going to try.

We've got a few minutes left, so we'll try and do a quick fire round here of the questions we've got.

Quick fire, yeah.

Yeah. So, I'm going to go to this one.

As a single person, what happens to my pension when I die?

Right. When somebody dies, it will depend on what sort of pension you're in. If you're in a defined benefit pension, then once you pass away, there is normally something for people who are dependent on you.

So, husband, wife, civil partner, children under the age of 23, may continue to get some of your pension benefits, probably not the whole lot, but some of it thereafter. If you're in a defined contribution pension, then you get to complete what's called an expression of wishes or a nomination of beneficiary form, or a couple of names you might hear, that tells the pension scheme who you would like to have your money if you pass away without having used it at all.

They don't have to follow exactly what your wishes are, but they normally will unless there's a good reason not to.

And so you could, for example, you may or may not have children, I don't know.

But if you don't have children, maybe you want to leave it to your, if you have nieces or nephews or... So you can decide who you want that money to go to. And as Justin said, there are technical reasons why they don't have to abide by this, but normally they do, and sometimes it can be really useful.

Someone might say, "I want it to go to my husband," or wife or whatever, but actually, they could have remarried three or four times, and the person they specify isn't actually the person they want to get it now.

And it's useful in that situation for a pension fund to have a bit more freedom about what did that person actually mean rather than what did they necessarily say.

Yeah.

But basically, the headline is, if you are single and if maybe you don't have children, then you can choose who you want that money to go to.

It doesn't have to be that it's only your partner or child who can inherit your pension.

And very quickly, although I appreciate we haven't been very quick fire so far.

It's why it's really-

We'll go down to one question now.

That's another reason why it's really important to keep that expression of wishes form or that nomination of beneficiary form up to date, because clearly, from the example Sarah gave just then, one that was completed two years ago was probably a lot more use than one that was completed 22 years ago.

Should we try and do a quick fire one, or have we run out of time?

Let's do one more.

We'll do one more.

Okay.

It will be quick fire. We will.

Well, okay, because this has come up a lot.

We've spoke about salary sacrifice, and we spoke about AVCs.

It might not be an easy, quick answer.

But people are wanting to know, are AVCs and salary sacrifice the same thing, or are they different things?

The short answer is no. And Justin might want to intervene, but salary sacrifice is kind of a way of paying pension contributions.

So with salary sacrifice, basically, you swap a bit of your salary, and your employer makes your pension contributions on your behalf. An AVC is a way of sort of topping up your pension, isn't it?

Yeah.

But you might want to give a more techy answer.

Well, not much more techy, but AVCs normally run alongside a defined benefit pension. So, if somebody wanted to, as you say, pay more into their pension than was required through the defined benefit contribution that they make, they can put that money into an AVC.

Great.

Great. Well, thank you very much to both of you. Fantastic.

We have some great comments in the chat saying thank you. Really, really helpful.

So we agree. It's been brilliant.

Absolutely, it has.

And thank you for kicking Pension Awareness off for us.

It's brilliant to have Royal London too.

Yeah.

Thanks for having us along.

Enjoyed it.

Yeah.

Great. And also, make sure you go to the website pensionawarenessday.com. Make sure you're booked in for the other shows. We've got Kate Smith joining us in about three quarters of an hour.

It's at 12.30 she's joining us. For that big topic. Finding lost pensions. Should I combine them?

Should I combine them? Big topic.

Must watch that one.

Absolutely.

And if you want to watch the catch up, go to the catch up part in the website.

You can watch all these shows back at your own leisure and show them to your friends as well. So, take care. Thank you for joining us.

We really loved it.

We have. Thank you.

And take care. Bye. See you. Bye