10 Sep 2020 • 6mins • Fonk

Pension myths debunked: An interview with PensionBee’s Clare Reilly

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Pensions are one of those topics that can leave the best of us feeling a bit mystified. There’s a lot of uncertainty when it comes to thinking about the future, even when money isn’t involved! Throw in a handful of money myths and wrong tips, and you’ve got yourself the perfect storm of money miscommunication!

At Yolt, we believe knowledge is power, especially when it comes to your money! So, we thought we’d hop on a call with PensionBee's Clare Reilly and get some answers.

Yolt: Thanks for joining us on the blog, Clare! First up - how do work-place pensions work? Can you lose your work pension if you switch jobs?


Clare:
When you start a new job, your employer has a legal obligation to pay into a pension for you. This is called auto-enrolment. You and your employer pay contributions into a pension whilst you are working in that job.

If you switch jobs in the future, your old employer will stop paying into it, but you keep the pension pot you’ve collected during your time there. That's your money for when you retire.

You can take that pension with you when you leave the job, and put it in your 'home' pot, like ones we provide at PensionBee. You can also ask to bring it to your new employer's scheme.

The crazy thing is, 80% of people don't take their pension with them when they change jobs! This means there are now millions of lost and abandoned pots all over the place - leading to lots of confused savers. It’s not a surprise that so many people think they lose their pension when they switch jobs. The government actually estimates that there could be as many as 50 million dormant pensions by 2050.

If you’ve forgotten to move an old work pension to your ‘home’ pot and can’t remember where it is, don’t worry! You can use the government’s free Pension Tracing Service to help you find it.

Yolt: Let’s say you never had a workplace pension. Is the State Pension enough to cover everything after retirement?


Clare: Based on the current cost of living, I would say that it’s not. Right now, the maximum state pension you can receive is £165.35 a week (or £8,545.50 a year), starting at age 65. To qualify for the full amount, you’ll need to have paid at least 35 years of National Insurance Contributions. And, to receive any state pension at all, you’ll need to have paid National Insurance Contributions for at least 10 years.

A simple calculation of your current income and outgoings will tell you that £165.35 a week is probably not enough. The Joseph Rowntree Foundation goes so far as to say the State Pension only provides half the amount you need to live comfortably in retirement. Which? also conducted a study which found that the average couple needs £26,000 a year for a comfortable retirement, which includes an occasional holiday and a new car every five years. If a couple forfeits all luxuries, they’ll need £18,000 – that’s still more than their combined state pensions will provide.

So, if you’re planning ahead for your retirement, it can be worth looking into ways you can supplement your State Pension.

Yolt: You might be able to guess our next question – is it too late to get started?


Clare: It's not too late to get started and create a proper savings plan for your retirement, but the longer you wait, the more generous (or creative) you might have to be. A survey by Which? found that a couple starting from scratch need to save £198 a month when they are 30 or £338 a month when they are 40, plus their state pensions, to reach an annual £26,000 income in retirement. We actually have a short video on the breakdown of these cost on the PensionBee Youtube channel!

Our pension calculator can also help you figure out how much you’ll need to save for a comfortable retirement. In a few clicks, you can set your desired retirement income, the age you’d like to retire, and find out how much you’ll need to save each month or year to achieve it. You might be pleasantly surprised by how little it takes – just get started!

Yolt: On the flipside, a lot of people might think they’re too young to start a pension. Is it ever too early?


Clare:
Unless you studied maths or economics, you might not have learnt about a magic thing called compound interest. It's so magical, in fact, that Albert Einstein himself called it the eighth wonder of the world!

In a nutshell, compound interest is the interest that you earn on the interest that's already built up on your savings. It's kind of like a snowball rolling down a mountain, it keeps picking up more snow as it goes. The further it travels, the bigger it gets.

Because it works by accumulating over time, compound interest can turn a small savings pot started when you’re young into a significant amount – when left until retirement.

In fact, saving from age 21 to 30 and then leaving it will lead to a bigger pot than if you start saving at 30 and stop at 70! Watch this 2 minute video to learn more about the wonders of compound interest.

Yolt: A lot of people may feel that they don’t have enough to put aside. Is any contribution too small?


Clare: Every little bit counts. Research tells us that most people are able to save 10% of their income, whether that is for a pension or for other saving goals. And if you can put money aside for your retirement, even your small contribution early in life can supersize your pension later. As I mentioned above, this is, in part, thanks to compound interest. The generous tax top ups you get from HMRC help, too. For every £100 you put into your pension, HMRC will top this up by another £25.

So, start early and start with a small affordable amount every month. That little bit really can add up.

Yolt: To wrap up, let’s look at one of the biggest pension pain points of all: Pensions are confusing!


Clare: Don’t worry – pensions confuse everyone. But it doesn't need to be like that! Here at PensionBee we’re on a mission to make pensions simple. We know that everyone leads a busy life, so we want to make managing your pension as straightforward as possible. You can learn more about how we're doing that on our website, or get lots more useful pension info on our blog!

We’re really excited about this latest connection with Yolt, giving people a clear and simple view of both their present and future money, together in one place!

Did we miss any of your pension questions?

Join the conversation by tweeting us at @getyolt!