# Why Workplace Pensions Matter So Much

An episode of [A Little Bit Richer](https://invisiblenetwork.ai/podcast/1706157445), 21 Sep 2023, 12 min.

Audio: https://pscrb.fm/rss/p/traffic.omny.fm/d/clips/2e9a850c-e6b9-48c2-afec-a8f8010f70f4/61b6e292-1c73-49e1-81ce-b075010b275f/3331fab4-72ca-41b6-b478-b082009a05b5/audio.mp3?utm_source=Podcast&in_playlist=aee4b1cb-b4f6-4283-99aa-b075010cd6b0

Paying into your workplace pension gets you free money from your employer and the government, and starting early on can have surprisingly big benefits. Thanks to the magic of compounding, saving even just a little in your 20s can leave you with a bigger pot than putting more away later on. This week our host Kia Commodore unpicks workplace pensions with Kim Brown, Legal & General’s Pension Scheme Director. How can you plan your pension, from managing parental leave to choosing the right investments for you? How much do you need to retire, and what State Pension could you be entitled to? When should you think about paying in a little more, and what should you think through if you want to save less? And a lot more besides. You can find out more about pensions on our website: htps://www.legalandgeneral.com/retirement/pensions/ As you listen, there are a couple of important points to bear in mind. First of all, in this episode Kim shares several pension growth numbers. They’re based on a series of assumptions about how the markets could perform. They’re general examples of how things could work out, not specific financial predictions. And in every episode Kia and her guests share their own personal thoughts and opinions, which might be different from Legal & General’s take on things. They give financial guidance for a UK audience that’s relevant at the time of recording. Again it’s general best practice, not the kind of personalised advice you’d get from a financial adviser. You can play the podcast here: https://www.legalandgeneral.com/podcasts/a-little-bit-richer See omnystudio.com/listener for privacy information.

## Transcript

[0:01] Kia: Hey, hey, it's Kia and you're listening to A Little
[0:03] Kia: Bit Richer. Pensions - we all know it's good to save
[0:06] Kia: into one, but it's so tempting to put it off until
[0:08] Kia: retirement's closer. It's understandable, but if you're wanting to get A
[0:11] Kia: Little Bit Richer, you've got to think about your long-term
[0:14] Kia: financial journey too. Let's get into this more. Today, I'm
[0:18] Kia: talking to Kim Brown, Legal & General's Pension Scheme Director. She's
[0:22] Kia: going to explain more about workplace pensions. But just before
[0:24] Kia: we get into this, it's worth saying that you're likely
[0:27] Kia: to have a workplace pension if you're working for a company.
[0:30] Kia: If you're working for yourself, you can save into a
[0:32] Kia: personal pension and we'll cover this topic in a later episode. Okay, Kim,
[0:35] Kia: let's break it down. What's the difference between a state
[0:38] Kia: pension and your own pension savings, and why is it
[0:40] Kia: important to have both?
[0:41] Kim Brown: So the state pension's paid for by the government when
[0:44] Kim Brown: you reach, currently, age 66. Research we've done on 22 to 32
[0:48] Kim Brown: year old shows that 22% of that group are looking
[0:52] Kim Brown: to rely solely on their state pension at retirement. Now,
[0:55] Kim Brown: the state pension is 10, 000 pounds a year, provided you've
[0:58] Kim Brown: had 35 years or more in national insurance contributions. So
[1:01] Kim Brown: provided you're willing to wait until age 66 to start
[1:04] Kim Brown: and provided 10, 000 sounds enough for you to live on,
[1:07] Kim Brown: then the state pension should give you that basics. If
[1:11] Kim Brown: you think that actually that isn't quite sufficient for your
[1:13] Kim Brown: needs or what you picture your retirement to be, you
[1:15] Kim Brown: might want to look at what you can save for
[1:16] Kim Brown: additionally through things like workplace or personal pensions.
[1:19] Kia: Okay, that's brilliant. So let's touch on workplace pensions then.
[1:23] Kia: So how exactly do those work?
[1:24] Kim Brown: So if you are 22 years of age or older and earning 10,000
[1:28] Kim Brown: pounds a year, your employer will automatically put you into
[1:31] Kim Brown: a workplace pension. So we call that automatic enrollment. You can
[1:34] Kim Brown: choose to join even if you don't meet that criteria
[1:36] Kim Brown: and ask to be automatically enrolled. So why, I guess,
[1:41] Kim Brown: workplace pensions and I think there's two big selling points
[1:45] Kim Brown: of workplace pensions. In addition to the already great thing
[1:48] Kim Brown: you're doing, which is putting money away for retirement, you
[1:50] Kim Brown: get the benefit of employer contributions into your pension scheme.
[1:54] Kim Brown: So currently, your employer has to pay 3% of your
[1:57] Kim Brown: salary into your pension for you each year on your
[1:59] Kim Brown: behalf. You also get money from the government. So if
[2:03] Kim Brown: you're a basic taxpayer and you want to put a
[2:05] Kim Brown: hundred pound a month into your pension, only 80 quid
[2:09] Kim Brown: will be taken from your salary. The other 20 pound
[2:12] Kim Brown: is paid for by the government under what's called tax
[2:14] Kim Brown: relief. So the difference I think with pensions above things
[2:18] Kim Brown: like ISAs, which are other good saving vehicles, is that
[2:21] Kim Brown: two key additional sort of free money for you as
[2:24] Kim Brown: an individual.
[2:25] Kia: I think when it comes to workplace pensions, let's just
[2:28] Kia: dive into employee contributions a little bit more I think.
[2:30] Kia: So when you contribute let's just say 5% to your
[2:33] Kia: pension, how does that work from your employer, their contribution
[2:36] Kia: into it?
[2:37] Kim Brown: Yeah, so if you're paying 5%, which is the AE
[2:38] Kim Brown: minimum, your employer pays 3% in your salary. A number
[2:42] Kim Brown: of employers will pay additional amounts. So you can think
[2:45] Kim Brown: about increasing your contribution and seeing if your employer will
[2:48] Kim Brown: match that.
[2:48] Kia: So that's just extra money from your employer, almost like,
[2:52] Kia: I think the way I like to see it is
[2:53] Kia: like a deferred pay rise or deferred money that you're
[2:55] Kia: getting from your employer that you're going to have, maybe
[2:57] Kia: not right now into your bank account, but you'll have
[3:00] Kia: it at later date, I think is a good way to look
[3:01] Kia: at it.
[3:01] Kim Brown: Yeah, I love that. That's the key thing about workplace pensions.
[3:04] Kim Brown: You've said it better than me. Free money from your employer
[3:06] Kim Brown: and free money from the government a s tax relief.
[3:08] Kia: I mean, what's better than free money? Right? What's better than that? Right, so as we've
[3:13] Kia: mentioned, pensions are important, however, most people don't start taking
[3:17] Kia: notice of their pension and their pension savings until they
[3:20] Kia: get older. So what's the best thing someone who's younger
[3:23] Kia: and listening can do to help keep track and remain
[3:26] Kia: on track when it comes to their pension savings?
[3:28] Kim Brown: So I think it's about saving as early as you
[3:30] Kim Brown: can, as much as you can. If you start saving
[3:33] Kim Brown: in your early twenties and even in your early thirties,
[3:36] Kim Brown: you are benefiting from the magic of compounding. So that
[3:39] Kim Brown: can make a huge difference on the ultimate pension that
[3:42] Kim Brown: you'll end up with. So if I give you an
[3:44] Kim Brown: example of how that works, I'm going to use our names.
[3:46] Kia: Go for it.
[3:46] Kim Brown: So if we've got a Kia and a Kim.
[3:48] Kia: Yes.
[3:48] Kim Brown: If Kia and her employer together are contributing to 2, 000
[3:52] Kim Brown: pounds a year to her pension and has done so from
[3:56] Kim Brown: the age of 19 to 30, we project that that will give
[4:00] Kim Brown: her an outcome on retirement of 243, 000.
[4:04] Kia: That's a good amount.
[4:04] Kim Brown: That's an all right amount.
[4:05] Kia: Yeah.
[4:05] Kim Brown: That's a good amount.
[4:06] Kia: I think Kia's happy with that.
[4:09] Kim Brown: If you take Kim, similar details, her and employer pay
[4:12] Kim Brown: in 2, 000 pound a year, but she starts at 30, but
[4:15] Kim Brown: she saves all the way up to 65. So Kim's
[4:18] Kim Brown: been saving for 35 years as opposed to Kia's 11, but
[4:22] Kim Brown: her outcomes is expected to be 10,000 pounds less so 236,
[4:25] Kim Brown: 000 at retirement. So that just shows you that impact
[4:30] Kim Brown: of starting early and what the compounding does to your
[4:33] Kim Brown: eventual pension outcome.
[4:34] Kia: I think that's a key thing. I think compounding is
[4:37] Kia: often this word that is mixed up with investing isn't
[4:40] Kia: really explained. I think the way you've put it is
[4:42] Kia: so useful to everyone that the earlier you start, the
[4:46] Kia: more of an impact it can have and it almost
[4:48] Kia: makes it a bit easier to keep going in your
[4:50] Kia: savings and stay on track with your savings, I think.
[4:53] Kim Brown: Exactly that. And your example earlier of free money, if we
[4:55] Kim Brown: come back to that, that 2, 000 pound a year, Kia
[4:58] Kim Brown: and Kim, they've both only paid a thousand each. The
[5:01] Kim Brown: additional 250 from the government top up the tax relief
[5:05] Kim Brown: and the 750 from the employer. So you're doubling the
[5:08] Kim Brown: money and by investing it earlier, it's also then working
[5:10] Kim Brown: for you.
[5:10] Kia: We love that, don't we? We love that, we do. So let's come
[5:14] Kia: to where we are right now. So right now, money is
[5:16] Kia: unfortunately really tight and it's easy to be tempted to
[5:19] Kia: reduce how much people save into their pensions. I know
[5:22] Kia: it's definitely a toss up. Do you take the money
[5:24] Kia: now or do you still keep saving the amount that
[5:26] Kia: you have been? So what would you say to someone
[5:28] Kia: who's considering reducing the amount that they contribute to their pension?
[5:31] Kim Brown: I think everyone is going to have different circumstances and
[5:35] Kim Brown: I think my key thing would be make sure it's
[5:37] Kim Brown: a considered ask, so understand what you'd be getting in
[5:40] Kim Brown: your pocket today and that point I just made on
[5:43] Kim Brown: what that could look like over time. Now, if you
[5:45] Kim Brown: need your money in your pocket today, you need your
[5:47] Kim Brown: money in your pocket today, but it is a good
[5:49] Kim Brown: deal and so you need to be considering what it
[5:51] Kim Brown: could be impacting you in the future.
[5:53] Kia: I think that's a really good point. I think it's
[5:54] Kia: important to always just sit down and review your finances.
[5:57] Kia: And like you said, see if you reduce it by
[5:59] Kia: a certain amount, how much does that leave you with,
[6:02] Kia: if it's something that can help you or should you
[6:04] Kia: keep your pension contributions the same amount. It is a
[6:07] Kia: very unique decision to make and it's one that should
[6:09] Kia: be well thought through as you said. So I completely
[6:11] Kia: agree with you. Now, let's look on the flip side.
[6:15] Kia: Is it worth, Kim, paying more into your pension if you
[6:18] Kia: have the option?
[6:19] Kim Brown: Yeah, so I think many of us dream about what
[6:21] Kim Brown: that retirement could look like. We talk about every day
[6:24] Kim Brown: is a weekend when you retire, but I don't know about you, but
[6:27] Kim Brown: weekends can be quite expensive.
[6:29] Kia: Oh, they can. They can.
[6:30] Kim Brown: For me.
[6:30] Kia: Depending on what you do, they can.
[6:32] Kim Brown: So the research I referred to at the start, the
[6:35] Kim Brown: expectations of 22 to 32 year olds and many are
[6:38] Kim Brown: looking to retire age 60, and the earlier you retire,
[6:42] Kim Brown: the more your pension has to do for you, the
[6:43] Kim Brown: longer you're going to be relying on it. So there's
[6:46] Kim Brown: things you can do as you go. So if you're
[6:48] Kim Brown: getting a pay increase, think about is this a part
[6:52] Kim Brown: of that you can add to your pension contributions, that
[6:55] Kim Brown: you won't perhaps miss in your pocket yet today, but
[6:57] Kim Brown: can go and look for saving for your future. Same
[7:00] Kim Brown: with bonuses, part or some or all of your bonus
[7:03] Kim Brown: can go into your pension and that'll be tax- free.
[7:06] Kim Brown: I'd also think about it in particular life events. So
[7:10] Kim Brown: career breaks can have a huge impact on your pension outcomes.
[7:14] Kim Brown: We experience what we call the gender pensions gap, which
[7:17] Kim Brown: is that women are walking away at retirement with half
[7:20] Kim Brown: the pension pot of men. Some of the factors of
[7:22] Kim Brown: that include cost of childcare, breaks for maternity, the increased
[7:27] Kim Brown: likelihood of being a carer and also potentially walking away
[7:31] Kim Brown: from work earlier due to symptoms of menopause. So I
[7:34] Kim Brown: think it's about understanding and planning for particular life events,
[7:38] Kim Brown: whether that's maternity or paternity leave. I know as a
[7:41] Kim Brown: mum of a two- year- old, it's not top of
[7:42] Kim Brown: your list, pensions, when you're doing some of these big things,
[7:45] Kim Brown: but it should be on your list.
[7:47] Kia: Just touching on what you said there then, obviously there
[7:49] Kia: is that pensions gap. So if we're speaking directly to
[7:52] Kia: women then, what can women do to almost help their
[7:55] Kia: pension contributions and their savings?
[7:57] Kim Brown: So I think there's a lot as individuals women can do.
[8:00] Kim Brown: So they can plan, they can continue to pay maternity
[8:04] Kim Brown: contribution, they can talk to their partner at a household
[8:06] Kim Brown: level. The reason we have gender pension gaps or in
[8:09] Kim Brown: fact pension gaps across a number of different minority criteria
[8:13] Kim Brown: is multifaceted. So we need solutions across legislative change, we
[8:17] Kim Brown: need employer policy review all in the support of producing
[8:21] Kim Brown: more equality at pension outcomes.
[8:23] Kia: I completely agree and I think it's important for people
[8:26] Kia: to know the different ways that they can contribute, especially women,
[8:30] Kia: and even the fact that your partner can contribute on
[8:32] Kia: your behalf. I think a lot of people don't realize
[8:34] Kia: that and there's different things that can help boost those
[8:36] Kia: savings even when you just take time off and you
[8:38] Kia: do have other responsibilities that require you and may not
[8:41] Kia: be your pension so much. So I want to ask
[8:45] Kia: you a question as well. When it comes to pensions,
[8:48] Kia: a lot of people don't know how much they should
[8:50] Kia: have in their savings. What does that look like? As
[8:53] Kia: you mentioned in the beginning, the state pension is around
[8:54] Kia: 10,000 pounds per year. How can someone, even if it's
[8:57] Kia: just like an estimate, how can someone get a good
[9:00] Kia: understanding of how much they should aim to have in their
[9:02] Kia: pension pot?
[9:03] Kim Brown: There are different tools out there that can help you
[9:05] Kim Brown: look at that. Most pension providers will have things like
[9:07] Kim Brown: calculators online. You can look at what sort of age you're
[9:10] Kim Brown: looking at, the type of experience you want to have
[9:14] Kim Brown: at retirement. So whether that looks like one holiday a
[9:17] Kim Brown: year, whether that looks like a holiday in the UK
[9:20] Kim Brown: or abroad, the type of lifestyle you're looking at. And
[9:23] Kim Brown: then it'll help you calculate what you need to be
[9:24] Kim Brown: contributing today and you can consider if that's sufficient, based
[9:28] Kim Brown: on who you are, what wider savings you have and
[9:30] Kim Brown: what kind of retirement you're looking for.
[9:32] Kia: That's really useful. Have a look at pension calculators, have
[9:34] Kia: a look at some of the stats to kind of
[9:36] Kia: give you a good baseline and guideline for how much
[9:38] Kia: you should have saved. Love that. So Kim, pensions are also
[9:42] Kia: a form of investment and I know when you think
[9:44] Kia: of it like that, sometimes it can be so overwhelming because
[9:47] Kia: the world of investing just seems so scary. So what is
[9:50] Kia: something that our listeners should consider on that side when
[9:54] Kia: it comes to pensions?
[9:55] Kim Brown: So I think that's a really good point. So pensions,
[9:57] Kim Brown: like any investment, can go up and down and there
[10:01] Kim Brown: is the risk that you could end up getting less than
[10:03] Kim Brown: you put in. So that's something to be mindful of,
[10:04] Kim Brown: but I don't think because it's investing people should just
[10:07] Kim Brown: focus on the more daunting aspects of investment. Investment, I
[10:11] Kim Brown: think, is really exciting and really interesting and you as
[10:14] Kim Brown: a person saving to a pension, your contributions are being
[10:17] Kim Brown: invested and you can choose to make decisions about that
[10:20] Kim Brown: if you want to. If you want to move away
[10:23] Kim Brown: from the fund you're being put into, you can pick
[10:25] Kim Brown: a fund that's higher risk, but potentially with higher reward
[10:28] Kim Brown: if that's something you're interested. You can also pick funds
[10:31] Kim Brown: suited to your particular beliefs, whether that's religious beliefs or
[10:34] Kim Brown: looking at funds that are more focused on ethical, responsible,
[10:37] Kim Brown: sustainable investing.
[10:38] Kia: I think that's great. I think it's good to be
[10:41] Kia: able to know that you can adapt things like your
[10:43] Kia: pension to suit your morals and your views and ultimately
[10:47] Kia: the risks that you want to save your money with, whether you
[10:49] Kia: want to be really high risk, like you said, maybe
[10:51] Kia: you're someone who's younger, for example. I know I'm a
[10:53] Kia: high risk person, I don't mind, let's go for it.
[10:55] Kia: Or you want to be low risk. It's completely up
[10:57] Kia: to you and it's tailored to you. So I think
[10:59] Kia: that's a great point to make as well. Okay, Kim,
[11:01] Kia: we're going to wrap things up now. What are the three
[11:03] Kia: quick things that you can recommend someone does if they're
[11:06] Kia: wanting to use their pension to get a little bit richer?
[11:09] Kim Brown: So I think it's about keeping track of your pension. We don't
[11:13] Kim Brown: have jobs for lives anymore. When you are moving jobs,
[11:15] Kim Brown: keep track, you can also pull those pots together, that's
[11:18] Kim Brown: your preference, under what we call consolidation. It's about looking
[11:22] Kim Brown: at all those things we've talked about, about ways to
[11:24] Kim Brown: get additional money in. So talk to your employer, see if
[11:27] Kim Brown: there is contribution matching, if you can put any additional aside,
[11:30] Kim Brown: particularly in earlier years. And then I think it's about
[11:35] Kim Brown: saving as much as you can for as early as
[11:37] Kim Brown: you can so that your pension can start working for you.
[11:40] Kia: Amazing. Kim, this has been such a great episode to
[11:42] Kia: learn more about pensions. And hopefully everyone listening knows that we can
[11:46] Kia: start early and get those pension savings rolling. We've been
[11:49] Kia: looking ahead to retirement, but let's bring things back into
[11:51] Kia: the present day a bit more. There's so many hacks
[11:53] Kia: to make sure you're getting the most out of working
[11:55] Kia: life, and that's what the next episode's all about, the
[11:58] Kia: world of workplace benefits. And it's not just work from
[12:00] Kia: home and free lunches, there's so much more. That's out
[12:03] Kia: next week. But while you wait, if this stuff is
[12:05] Kia: working for you, then hit follow, tell your friends and
[12:08] Kia: come back next time. Until then, have a good week
[12:11] Kia: and go stick some money in your pension.

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