Pensions: You're Not Too Young, Part 2 - BOD016

22:52Pete:Correct. All right. So it's like this middle ground because you get some highs, but not crazy highs, and you get some lows, but not crazy lows. Yeah, that's right. So we got some episodes coming up on assets, classes, and investing. So we're going to dig into investing pretty deep in the coming weeks. But for now, there's a default fund that you will go in. if you don't make a choice. And a fund, remember, is just a way of buying more assets than you would be able to do by yourself. Oh, yeah. The fund is where, like, you have a pot of money with other people, right? They call collective investment schemes collective.

23:32Pete:So you and everybody else in that fund, you pool your money together. Yeah. and then you get the amount of the share worth of how much you put in. Yeah, right. So if you had 10 people each putting in 1 ,000 quid into one fund, there's now 10 ,000 pounds available to be invested. But you don't have 10 ,000 pounds in your investment. No, you have a tenth of whatever it's worth. So if 10 ,000 grows to 20 ,000, your tenth of that is two grand. Yes. Stick a few more zeros on that and that's basically what's happening. But because you pool your money with everybody else, you get buying power. Yes, you can buy the bigger shares, the more expensive shares together.

24:10Pete:Exactly. Like for the big companies. Yeah, so instead of buying like, you know, 100 shares in Apple or Amazon or whoever, you might be able to buy 100 ,000 shares as a fund. You still get your tiny slice of it, but you've got more power and also you've got economies of scale. So you can buy more companies, shares in more companies than you could as an individual investor you could technically do it but it would be just a paperwork nightmare and also the funds they take care of it it's all done, you literally just buy the fund and forget about it there's so much to be said for that especially given you know at my age the audience that we're kind of aiming is for although all are welcome of course of course I don't want to spend the next 35 years of my life managing a pension No, no, some people do.

25:02Pete:Some people get a real kick out of managing their investments, but most don't. But most don't. And great, good for you. I wish I was the kind of mind, I had the kind of mind that was really amazed and really enjoyed it. But for 35 years, it feels like, oh, I can't be bothered to deal with that for that long. And the problem is most of us are lay people and we don't really know what we're doing. And so a fund is sort of doing that for you. You know, it's wealth building done for you. You buy a fund inside your pension. You will have a list of options, right? but you're going to a default if you don't make a choice.

25:33Wow. And again, we've answered the question within that discussion, but that's fine. So, well, do I need to choose a fund or just leave it? You need to choose a fund to be able to leave it. Well, you can go into the default.

25:45Pete:90 % of people with workplace pensions are in the default fund. Really? So if you're 23, as you are. I am. And you're not going to access this pension for at least 35 years and probably more. I can afford to take a few risks. You should be pushing that money as hard as you can. Yeah. Have we talked about risk yet? Can I remember? I honestly can't. I feel like we've touched on it. Yeah, it's not an episode really. Investments carry risk, but it's kind of intelligent thought through risk. It's not the risk of it all being lost. No. But generally speaking, the higher the risk, the higher return. Risk and return are linked.

26:28and whilst I'm not able to take it out yet it doesn't matter if it drops because I've got time for it to grow back up again

26:34Pete:exactly and you want it to drop because then you can buy shares cheaper and then they'll grow again so it all kind of averages out over 30 odd years anyway so you should be choosing a higher risk and higher return fund because as you rightly say you can afford to ignore the ups and downs because it's so far in the future but then when I come to being five years away from retirement and I'm going to want to dial back into a fund. Well, you start thinking about it then. Yeah. Whether you dial it back or not is questionable. That's much more individual. Depends how personal you feel if you're okay with being a bit more risky for a bit longer.

27:08Pete:Yeah, and how and when and why are you going to take money out? That's basically at Jackson's, we spend most of our time managing the transition for people into retirement, tweaking their investments, getting them ready and teaching them how to draw from what and when. So if you are in your 20s, 30s and really even in your 40s, you should be aggressively invested inside your pension. Reasonably high risk. Yeah, and I haven't written this down, but it's a good point. How would our listeners change from their default fund? Yeah, what are they looking for? Do they speak to their boss? So most workplace pensions have logins these days.

27:43Yeah.

27:44Pete:Right? You set yours up yet? No. You thought that was going to be the next question? Yeah. So, you know, you've got a login, so you can log in and see how it's doing. but in there usually you would be able to change. Problem is you log in and you've got a list of 50 funds. Where the hell do you start? Yeah. Right? So if you want if, and this is not advice, we can't give advice here, right? So do your own research and think about it and watch the next few episodes. Yeah. You're looking for probably the word global. Index. Index. Fund. Tracker. Fund. Something like that. These kind of words. Global.

28:22Pete:You could even look for words like adventurous or aggressive. I know that aggressive is a horrible word to use for investing. But yeah, index passive is another word to look out for. If you kind of get as many of those words together as you can, if you have like a global passive index tracker, that's probably going to be the one to go for it. Right? You don't want balanced. You don't want cautious. You don't want defensive. You want adventurous. You want global. They wanted help with this. okay so could they go and speak to them yeah but they won't be able to get advice in the boss in order to get advice you'd need to see a financial advisor that's going to cost you a lot of money right one good place to do it is the meaningful money facebook group which is free so meaningfulmoney.tv slash community it's a facebook group there's 25 ,000 people in it and it's facebook's for oldies you might have to re-download it but it's worth it yeah true yeah perhaps we need to come up oh my gosh we're gonna have an instagram group well maybe let's think about that exists okay actually actually yes it can but anyway carol somebody's got to moderate it though that's the thing yeah which you have some incredible moderators we have brilliant mods they're um volunteers and they just do an amazing job and it's a safe space for people to ask questions yeah they think you know number of times people say sorry to ask a stupid question and it's like no no no that's the basis of this the basis yeah the whole thing it's a safe space to ask questions and people are really helpful in there so that's one place to do it you could ask a trusted family member or colleague yeah i know it sounds definitely cliche but you might want to if almost always in the workplace there's somebody who is into it and they they take it on themselves to sort of talk to their younger colleagues about the pension there's always someone who's slightly oldest like there's more you know life experience isn't it and i'm sure you need to join your pension come on they will help you yeah they will so look for somebody that you trust to help you join uh meaningful money facebook group if you have the uh book face that'll be in the description yep all right so the next one's quite an interesting one and i'm just conscious of time but this is 34 minutes we're not doing too bad rattle through job changes and life admin as we've said we change jobs a lot and we're changing jobs more so what happens to my pensions when i change jobs if i leave jackson's in five years what happens to the pension that i've built up if you ask most people they say the pension gets frozen it's a terrible choice of word because it still grows yes exactly it's not like it's like you've got two grand in your pension and it'll be two grand in 35 years time if you don't touch it so basically it just it stopped you stop contributing to it yeah normally what happens your pot is kind of attached to the scheme and it then becomes a personal pension it's still yours it's got your name on it it's linked to your insurance number um as long as you update the provider with your address if you move they will still send you a statement every year right so it's just no longer part of the group scheme the workplace scheme it's your individual and you're not contributing to it no i mean unless you want to.

31:30Pete:Unless you want to. But you're not automatically contributing. No, no. So it just kind of stops. You stop making contributions. Your old employer obviously stops making contributions. You start a new job and there's almost certainly a new different pension there. So then you've potentially got decisions to make. Yeah, we've just done a whole two-part episode on Meaningful Money about what to do when you've got loads and loads of pensions when you're that bit older. Well old. So don't need to worry about it. Just keep track of the ones that you have. Try not to forget about them? No, yeah, definitely.

32:02Pete:I mean, keep a list somewhere, right? You know, when it's just in a sort of dedicated notebook for the purpose of financing stuff. Yeah. Keep a list. All you need to know is the provider. Yeah. Providers change. That's a bit of a problem sometimes. But can you, like, if you're like, I know it was with Aviva in 2012 to 2014. Surely they'll be able to find it then, if you know the dates. Yeah, and the key thing that almost never changes, I want to say never, but almost never changes is your policy number. Right, so have a record of that. So have a record of that, but it will also be linked to your national insurance number, which of course is unique and unchanging.

32:37Pete:But I think what you don't want is a kind of breadcrumb trail of little old pensions. No. So I think there is real merit in taking the time to be intentional and tidy up pensions as you go. So you asked right at the beginning, can you have more than one? yes but you shouldn't have loads no but you could be you know you always should be in that your current workplace pension so that you get your employer's contribution but you could have a little sip alongside and as you go along and as you change jobs tidy your old workplace pensions into your sip or into your platform pension that you've got right this is barreling into a bigger question of how do you do that it's surprisingly easy okay open a pension on a platform all right and it'll say, do you want to transfer any money in?

33:28Pete:You enter the name of your old pension provider, the policy number, and they'll do the rest. Honestly, it's that easy. Oh, okay. So it doesn't take long. It's not complicated. And if you do that as you go, it will take you 15 minutes maximum. Oh, yeah, totally. As opposed to taking hours working and tracing out, you know, 30 years worth of little diddly bits of pension. There is billions of pounds unclaimed because people forget they've got pension pots. Wow, that makes me sad. I'll take a billion or two. I know. Do you know what I mean? It's such a waste. I honestly don't know what happens to it.

34:00It's got to get spent somehow. It's not just floating in the ether, surely.

34:04Pete:I don't know. But then I suppose governments don't have any claim to it. No, it's under trust for the individual. So if they die and all their descendants die and nobody remembers it, what happens to it? But the point is, it's not been spent and enjoyed, and that's a travesty. Which is really crap, yes. So that's a good thing, and I didn't know it was easy to do that. Dead easy to transfer. Having a workplace one and a sip, and then when you finish your workplace, finish your job at work, just tidy up that workplace. Tidy up your immediate last scheme into your own pot. Retirement, or approaching retirement, you were really thankful for that.

34:34Pete:Oh my gosh. Can you imagine? Not half. It's amazing what people forget they've got and how much work we have to do to tidy up. Yeah. And finding them when platforms have changed 20 years ago. You were just saying in a video recent, in one of the episodes we filmed in Meaningful Money today, that you had a client who just forgot they had 15 ,000 pounds in an ISA. That was my first day as a financial advisor in 1998. Was it in an ISA or a pension? I think it was just in a savings account. So it wasn't growing for the time that they forgot about it. Well, no, it was a long time ago, but I had a bit of interest.

35:09Pete:But I went into this house with my brand new boss on my first day as a trainee financial advisor. Basically, he's doing all the work. I'm training. I'm just like watching and learning. and he's speaking to this middle-aged couple I guess they were late 50s, early 60s maybe and yeah, they had all their financial affairs in one of those little suitcases like Paddington carries what, like the hand-held ones? yeah, a little handle on top and they just popped it open and because we're asking what they've got because we need to get a thorough picture before we advise them and she pulls out a bank book I'll tell you how long ago it was so there's£15 ,000 in this account I'd forgotten we had that, Donald Yes, so did I, Deidre.

35:50Pete:And I remember, because I was like 23 at the time, your age, thinking, how can you forget you've got 15 grand in the account? That's like an enormous sum of money, but to them it wasn't. Wow. I was thinking, what could 15 grand do to the mortgage and principal I applied for yesterday? Yeah, right. That's a lot of money. That could do a lot. If you forget about it, you clearly don't need it. Just give it to me. Just give it to me. I remember that exact thought going through my mind as a 23-year-old. I'm not flawed at all as a trainee advisor. No, no, exactly. Conflict of interest. Get you into some hot water there.

36:23Great. So we've talked about what happens when you change your jobs, about combining them. We've talked about that and how to keep track of old ones. Fantastic. All right. Accessing them. Now, we're going to just gloss over this because it's way into the super duper future, unforged. When can I actually take my money?

36:39Pete:Currently, age 55. Won't be for us, though. No. The minimum pension age is going up to 57 from 2028 and it will probably be higher by the time you get there. Yeah. there are certain scenarios where you can take it early. We mentioned those with insurance, didn't we? Did we? Possibly. I think so. If you're terminally ill, you might be able to draw your pension early without any kind of penalty. But obviously that sucks. Yeah, because you're terminally ill, yeah. If you are in certain professions, but I mean we're talking professional sports, so there's protected pension ages on certain. If you've got one of them, you'll know about it.

37:19Yeah, because you can't do the job after you're 32 or something. Exactly. So you can access pensions early.

37:25Pete:But generally speaking, it's 55 currently rising to 57 unless you're either poorly or you've got a protected pension age. Fair enough. Well, that answers the can I take it early, so no. Right. Last things. Can you just walk me through some common mistakes that people make regarding their pensions? I think folks... Especially my age. Yeah, right. I think to the target audience for this, there's three primary mistakes. The biggest one by far is opting out. Yeah. So not joining the pension at all or choosing not to, right? Well, I get it, right? I suppose it's losing money out of your paycheck, isn't it?

37:58Pete:Yeah, it's money you can't spend now. Yeah. All right, but as we covered last time, the money you put in in your 20s eventually ends up being more than half your total pot, right? Because it's got the longest time to grow and compound. So even though you're giving up, I don't know, depending on your earnings, it might be 30, 40, 50, 60, 70 quid. That's massive. It's a lot of money not to spend. Yeah. That might be a week's food budget for you, right? But if you can get used to, because you never get it because it's taken out of your payslip before you get your net pay. Honestly, if you never get used to having that money, you'll never miss it.

38:37Well, I suppose if you opt out, then have to opt back to it, you'll notice.

38:40Pete:You'll notice it more. So just with every fibre of my being, don't opt out of your employer pension it's free money if there's 20 quid on the floor and nobody around you'd pick it up i'd pick it up with people around yes please well unless i saw the person drop it i'm not gonna like steal it from them but i mean if it's free money you would just suck it up and yet it doesn't feel like that because people focus on what they are quotes losing out of their pay as opposed to what they're gaining it's just going it's going to future you yeah that's true and it'll be worth a lot more to future you than it is to current you yeah so that's mistake number one opting out yeah mistake number two is losing track of old pensions it's dead easy we're busy right and let's face it it's not the most gripping way to spend an evening keeping track of your pensions right so but honestly it doesn't take long when you leave one employer just make sure you've got a record of that old scheme and even better take 15 minutes half an hour to tidy up by having a sort of side pension of your own on a platform that easy yeah right and just take the time enter the details on the platform and all transfer will just happen for you dead easy and that might take a couple days to go through and settle it might take six weeks to go through but usually it's okay all right so don't panic if it's been a a week no no you'll get you should be kept in in um sort of in touch by both sides as to what's happening yeah yeah and then final mistake well waiting to start well that's the one we really covered last week wasn't it yeah because of and i i do understand it you know no judgment here i do understand why you think oh yeah i'm 23 this is like stuff for my 50s and 60s and 70s i'll get to that problem is life gets in the way and you know before you know okay i want to buy a house or i want to you know live with the person that i love and i want to get married maybe or we want to have kids or we want to adopt or do you know i want to travel yeah exactly and don't have dependents exactly right so you know life is expensive as it is and it's too easy to put this off but you will have to put massively more in your money into your pension in your 40s and 50s if you don't pay in smaller amounts in your 20s and 30s so if you can do it early and get used to doing it eventually it's just second nature um so you know i think waiting is always a bad idea i do understand why people do it but if you can get used to it early future you will thank you i think seeing the numbers last week would have kind of shocked people that just how drastically different it is to start earlier versus to start it's massive yeah yeah 10 years later yeah exactly right my ipad is closing gosh i'm gonna have fun editing this one down to all from 45 minutes yeah getting wordy in my old age.

41:25Pete:Kel surprise. Yeah, shock. Yeah, we were talking about minutia for a little while. Yeah, we did. I'd call that out if you want. Has Kate got it? The iPad is closed for those on audio only. It is. Tough one to start. What does SIP stand for? Self-Invested Personal Pension. Well done. I'm impressed. Good job you were listening. Did you just flick me the bird then? No, I went like this. All right, okay. I thought you'd just been giving me the middle finger. Yeah, wait! No. It wouldn't be the first time if you had. Well, no, but you didn't deserve it then, so it's fine. contribution levels to a workplace pension 5 % from the employee yeah of which well 4 % is actually paid and 1 % is the tax that they would have paid if they were taken out and 3 % by the employer brilliant well done what proportion of people in workplace pensions are in the default scheme 90 % that's because people don't care 90 % 90 % of people 90 % of people it's understandable they don't care they're not interested they don't know how to do it I didn't even know that was a thing until we talked about it before and that's me as the daughter of a financial advisor let alone someone who got no financial input reason to understand what's the current national minimum pension age that you can take money out 55 and finally let's have a look what sort of words might people want to be looking for when they're changing their funds in their pension if you're young and got decades to go?

42:55Global. Aggressive. Index. Tracker.

43:01Pete:Another one beginning with A might come up.

43:06Pete:Adventurous. Oh, adventurous. That was a bit tricky, yeah. I'd say you've done very well there. Do you think I've got it? I think I've got it, actually. I'm going to say that I've got it. We've covered good ground. I think we've covered some good ground. I think there's very clearly more to cover. there is but I mean but I think that's a really good basis I think that's actually more than a base level understanding actually I reckon if you get what we've covered in the last two episodes you probably understand more than 90 % of people in the country 90 people in the country that's amazing though isn't it to think that the most even just by changing your fund in your pension from the default one to a more aggressive one you're already ahead of 90 % of the population it's incredible to think that so go you guys go for it Do it and let us know how you get on.

43:51Pete:Ask any questions as well. Yeah, like we said, we can't obviously give a device. I can't at all because I ain't an advisor. You don't want advice from her. Nope. She has got it, but... That won't work well. But obviously, generally, we can't give advice because Dad is very much regulated and that sort of thing. But what we're doing is giving you information and it's up to you how you take it. Yeah, but we love answering questions. So if you want to send us an email, you can do that. Hello at bankofdad.show. You know, we do see them. Kate reads them all. I do. passes some to me to reply to sometimes.

44:20Yeah, I have no idea how to answer this one.

44:22Pete:But, you know, if you've got any questions, then fire them at us. We'd love to help you if we can. Yeah, absolutely. I check the inbox every single day. And I love it. We love it. Yeah, we do. Hearing from you also. People are very kind. Yes. So I don't think we've mentioned... Oh, the Meaningful Money Facebook group, I think, is going to be in the description box. But if there were any other links that we talked about, they will be in the show notes, which is... I was about to say Meaningful Money. No, no. Whoa. which is bankofdad.show forward slash episode 16. They will all be there for you.

44:51What are we covering next week?

44:53Pete:We're going to start, it's going to be a few weeks, talking about investing. Yeah, we're going to break that down more. Yeah, specifically I think we're talking about assets next week. What it means, what are we buying when we invest? Where does the money actually go? We've got like three tiers, haven't we? Assets. Wrapper, account and platform. So those are the three episodes that we're really going to break down investments because we kind of touched upon it. Yeah, it's amazing how much you kind of assume people know. Well, this is it. This is why I confirmed what commercial meant. We are literally taking this as if you don't know anything.

45:24Pete:Yeah, yeah, I don't know anything. Yeah, yeah, it's true. It's easy for me after 30 years of using jargon, so I try not to do that. No, I think you're very good. Built a career on that. Yeah. So, yeah. So, looking forward to getting into that. It's going to be fun. Yes. Again, thank you so very much for watching. Please like and subscribe. If you're enjoying it, click the notification bell as well so you get notified when we post. And yeah, I think that's everything. So yeah, we'll see you. Sorry, I crashed you. That's okay. That's fine. We will see you next time. Cheers.