Pension expert: The one thing you must sort out this year

27:21The difference in performance in retirement was half of your pension. So you go from that individual paying£300,£400 a month, instead of having£3.4 million, had£1.8. It's like devastating for returns. So where it's going to get interesting is, and we'll see how this one plays out because it may or may not work, but there is this push to introduce this value for money framework on pension schemes to surface this kind of data, to shine a bit of a sunlight on the decisions that pension schemes are making, the investment choices they're making, the charges they're deducting, the services they offer to their members, and to put all that out there.

27:55It's going to take a couple of years from now yet before they're actually... I did it in 10 minutes. 1.8 % fee on NEST on contributions plus 0.3%. It's not that hard to get this in there. Obviously, the Department for Work and Pensions moves a bit slower than... Well, I'll call it out a lot louder than they will then. So maybe we'll get to the point where there's more scrutiny at that kind of data. Yeah, because it just seems that they're in a very privileged position in the sense of they basically get to be on this preferred supplier list of schemes and they just hoover in assets. And then 90 % of people don't ask what they do with those assets.

28:25Yes, and the whole motivation is we don't want to scare the horses. We don't want to alarm people. We'll do just a safe middle of the road option. And we want predictable cash flows maybe. Because if you've got 30 billion in assets under management and the market drops 20 % in one year, your slice, your 0.3 % takes a big hit. So maybe they go, well, we can forecast, if we know that growth is going to be oh you're cynical four to six I think we should be at these guys like personally I mean I'm sure they're lovely people behind the scenes this all comes back to the point that you as an individual anyone watching this should take the time to interrogate this information to interrogate where their money is being put and decide whether that's right for them last time we recorded to me and you were having some real dramas with your accountant so how's that been going mate they're sacked so drama sorted they're a big corporate firm they didn't really reply to my emails very quickly like took a week or two at times and they charged me way too much I mean I've got pretty simple taxes and yeah they were charging me thousands they saved me some money but yeah I had to move on slow and expensive pretty much yeah this is one of the reasons that we're really happy to be partnering with tax app it's a tech platform that makes self-assessment simple whether you're self-employed like me a freelancer or a director like demo big dog instead of sending endless emails bills and spreadsheets to your accountant, you just connect your bank, answer a few questions that are only relevant to you, and your tax return can be ready in as little as 15 minutes.

29:49TaxApp is really easy to use, and it's HMRC-recognized software, so it's safe, secure, and legit. The price is also decent, so if you're self-employed with one income stream, it's just£89 as a one-off fee, no big accountancy fees, and we also have a discount code, of course. If you need to file a self-assessment this year, give TaxApp a try. We've left a link in the description and use the code MONEY10 for 10 % off your first tax filing. That code is MONEY, M-O-N-E-Y-1-0. So Mr. O 'Carolet, I hear you are a salesman. Elite salesman, yes. One of the best they say? I've got a little bit of experience in the game, yeah, I could say.

30:25Done a few deals. A bill, a bill. What would your compliance team say about you? They would say that I am always nagging them and that essentially I just have beef with compliance i love the team compliance slows down all my deals because every time i get to the finish line they've got to check documents kyc uh gdpr and it's just a nightmare it slows the deal down by like two three weeks it's always on both sides as well as sometimes it can be blocked on the other side exactly well that's where today's sponsor can help indeed vanta helps companies of all sizes get secure and compliant fast and they stay that way they do it by automating compliance with over 35 security and privacy frameworks like SOC 2, ISO 27001 and HIPAA.

31:09Yeah, all of them. And this saves businesses so much time and money. According to a recent IDC study, Vanta customers save over half a million dollars a year in costs. Not bad. And they also help you complete security questionnaires up to five times faster, which is great because everybody hates filling out forms. If you're a business that needs to prove security and compliance, Visit vanta.com forward slash making money to sign up for a completely free demo today. That's vanta.com forward slash making money. There's a link in the description though, so you can just click that. I think what I hope is that people see my passion around this and then they go, okay, I need to take this seriously.

31:46So let's say you log on, let's stop beating that stuff. You log on to any of them, any work-based pension scheme, and you look at the default. so you'll have this big fund name and you'll have a fact sheet what should people be looking at there and then if they go okay I want to listen to people and I want more equity with a global exposure how do I then go through the funds that are available and find one that suits that and then it's going to depend on how good they are at sharing the information with you so there'll be fun fact sheets for all the different funds they offer and you know you mentioned nest well they've only got a handful of funds but other pension providers will have dozens or even hundreds of funds.

32:22Most of them have got better at helping people to pick funds. So a company I used to work for, Hargreaves Lansdowne, thousands of funds. Your brain explodes at this point. So what they do is they then funnel the information down and say, look, here's a list of Best Buy funds. If you want an international equity fund, here are three we really like. And again, there's regulatory interventions going on to make it easier for firms to do more of that kind of thing, to help steer their customers towards better decision making. So that will help. guidance so it's kind of like people like you rather rather than this is advice because if i i have to worry about saying i buy vwrp or vwrl because people are always investment advice it's no it's just what i buy yeah yeah i talked about the imbesco fund that they introduced it was a low-cost global etf that had you know it wasn't perfect replication but i said oh this is interesting it's cheap i'm gonna buy that and i saw the assets under management just and I was like, oh my God.

33:19Like, you know, I can't even talk about funds because I do worry about this kind of thing. And I guess it's the same for Hargreaves. So the FCA wants to make it easier for firms to do that. And they kind of do it a bit already. They'll do more of it in the future. But what you get offered will depend on which pension provider your employer has put you in and what particular range of funds they've got. So then you've got to do the hard yards. So do you want active management? Do you want passive management? Do you want international equities? You know, there's some of the stuff we've already talked about here.

33:47and narrow down to a fund that you feel you're comfortable with. And that means maybe looking at the fund fact sheets, looking at the characteristics of the fund. And then also this is not a once-and-done approach, right? So depending on how far out along that risk spectrum you go, like if you're in a self-invested personal pension, in theory, a SIP, in theory, you could just put a portfolio of individual equities and individual shares in your pension fund. You could just buy one company. You could just buy one company, right? There's quite high risk exposure there. So depending on what you do with that should dictate how often you then revisit it.

34:29Come back to that nest default fund. The whole principle on which that was designed is we can just shove people into it and if they never look at it for 30 years, it'll be fine. Nothing bad will happen here. As you say, there's an opportunity cost for their investment strategy, but it's designed for people who don't look at their pensions. Whereas to take their other extreme, if you've bought one company in your SIP, you should probably be looking at that every day. So your investment strategy should then dictate how often you revisit the choices you've made. Have you got any rules of thumb of thinking about the mix between equities and bonds or when people should start to de-risk or dilute away from equities?

35:05Yeah, I think part of the answer to that question lies in what you're going to do with the money once you're in retirement. because if you're going to just keep the fund invested and draw off the investment fund, you should probably stay largely invested in equities even into retirement and maybe start to de-risk slightly and move towards bonds, but maybe still have over 50 % of your investment assets in equities even into your 60s. By contrast, to use an extreme example, if you're going to buy an annuity with your pension pot at the point of retirement, then by the time you get there, you really want to be about 75 % or more invested in bonds.

35:41So your retirement income strategy, to some extent, should inform your pre-retirement risk strategy. That makes sense, because you want to maximise the size of the annuity. You want to guarantee that you don't want a big drop and then you can't buy the annuity you want. Well, annuity rates and bond prices are inversely correlated. So if the bond market goes down, the yield will go up, so you'll be able to get a higher annuity rate. So once you're invested in bonds, you're kind of locked in a bit in terms of the amount of income you'll get from retirement. You guys are both pension experts and finance experts.

36:15I like the air quotes there. The air quotes for David. Alleged experts. Yeah, yeah, yeah. So that's what it is. They talk a good game. That's a big game. But I was trying to sort out my SIP last year. I mean, I know we're on workplace pensions, but you mentioned Hargree's Lansdowne, and that's who I use. And it's just like overwhelming. There's so much selection, so much choice. you did give some good tips now but where can someone actually start like if you're looking at all these funds do you go okay global funds or like how do you narrow it down to know what's good for you you can filter so you said like passive or active you know for me let's just run through what i would do because that might help people i would always want to be passive because passive have lower fees and i think we can control the fees and when i say passive just means i want to track the market so i'd filter out active personally because i don't personally feel that active managers have an edge and I feel the fees they charge make me start the race two steps back I then would go global rather than just America because I'm a citizen of the world I live outside of America and I think you know the world has other things to offer so I'm looking for a passive fund with global exposure and I think it helps to have a fact sheet of another fund that that maybe you can compare to so when I look at pension funds on my work-based scheme I would have a vanguard global fund because I know that this is kind of like a gold standard global fund and I can look at the distribution and go okay well this fund is 65 percent America four percent UK and this fund that I'm looking at on my pension platform or for my SIP that kind of has a similar amount some of them you'll see it's a global fund and then it's 30 percent UK and you're like hold on that that's not what Vanguard is telling me the world is you know so have that kind of comparison and the Vanguard fact sheets are really easy to get and then you might say to yourself well I don't want to put all my eggs in one basket you know that might be a good fund but i'll pick i'll pick two or i'll pick three just just just to spread it around but there's no fixed cost of picking more than one fund typically you have the default and your own you can do that you can split your money between them yeah if you felt like doing that so try it for a couple of years and see if it goes okay absolutely and then you can look at the performance of the funds you can look at the narratives that they generally publish to say this is why this fund is doing what it's doing we've made these investment choices this is how it's you know with the default fund this is this is why it's behaved in the way that it has and you might say okay You know, they seem to know what they're doing.

38:28Or you might say, oh, this is just... And it's also important to bear in mind, even with the passive funds, they don't precisely track the indices. They kind of fudge things a little bit because they can't buy all the shares in every stock market around the world. So some passive funds, in theory, you could have two passive funds, both tracking the same index, but the performances will not be identical. So, I mean, that's another reason why you might want to consider having more than one fund, even though they're essentially doing a very similar thing. and then again over time you can look at who's doing better and who's doing worse and when you say you should check on it regularly i mean obviously like you said if you get married if you have a kid um change jobs should you is it hard to change like if you're like oh this isn't performing well or i need something with more risk it's pretty straightforward so some some pension providers make it super easy and you can just do it online and it's five minutes work to click and say no i want to sell these i want to switch them all to this fund and then it's done and i want to redirect future contributions into this fund instead and they don't charge you for that absolutely there's no fixed fees for doing any of that some of them are a little less uh technologically accessible so you might you might in theory even have to do it in paper but but most of them have got a lot better in the last few years and a lot of pension providers have now produced apps to help you access your retirement savings um so how how forthcoming are they then if let's say someone goes because i you know you go on aviva right aviva have got a lot of funds so kind of like hl it's almost when i went on their their website i can't get access to them because they don't have the schemes, but it seemed like they had hundreds of choices, if not thousands, whereas Nest have got six.

40:01So if I call up a pension provider and I say, I want a passive fund that tracks the global stock market, can you tell me what you've got? Will they give you that information? They should, because that is information. You're not asking for advice. They may say to you, these are the four funds that we run that offer what you've asked for. So I would hope they would give you a sensible answer to that question, yes. because I've you know I've had people say that they say we can't give advice that's not it's not advice it's just like basically show me your wares you know what products have you got absolutely yeah I'm telling you what I want to see this is not advice I'm just asking for factual information what passive global equity funds do you run well they should be able to show you so people can push back maybe and say like if you don't if you're not comfortable giving me that information can I speak to a manager or whatever because you know someone will realize this isn't advice yeah and And if you're in a workplace pension, you may be able to go to the people who run the pension for you within your employer, particularly if it's a small business.

41:00You can just go to your boss and go, hey, boss, this pension is not working for me. I mean, you can actually have those conversations sometimes with your employers. And if it's a big company, they might have an HR department that selected the pension scheme for the employees. And again, maybe you can go and talk to them because they will probably have a relationship with the pension provider. and they may be able to give you some help with it or point you towards where you can get better information about it. So don't think you just have to bash your head against a brick wall with an anonymous pension company that doesn't answer the phone.

41:30There may be other ways you can get access to information or possibly even lobby your boss to change the pension scheme that he selected for you if it's the kind of company where you can do that. I mean, they work for you and they're going to earn a lot of money out of you over the course of your working life. So pick up the phone and they should answer the questions, right? Absolutely. With the employer stuff, I want to touch on this because we have a lot of people that are employers and I see questions all the time. When I did my Nest video, people said, who's better, Damien, and how do I pick someone who's better for my staff?

42:00Because I think the Nest offering is attractive to employers because they do everything. They come in and they're kind of like, we fix it quick. The reason Nest exists is because back in 2008 when they started designing the auto-enrolment system and then they legislated for it from 2012, they had to have a universal default because otherwise they were going to pass legislation that says every employer must select a pension scheme for their staff well you know your small chip shop owner who's got a relative relatively unattractive proposition for a pension provider they might have struggled to actually find a pension company that would be willing to set up a workplace pension scheme for them and we couldn't have that because legally they were obliged to so you needed to have nest as a backstop as a public service obligation that they would take any employer or any individual, and that's their job.

42:47And we've lent them well over a billion pounds in loans from the taxpayer to fund the setup of the nest pension scheme, and maybe one day they'll pay that money back. Well, they're taking 1.8 % on contributions, so why are they not paying it back? That's what the 1.8 is for, in theory, is to pay back the loans that they took from the taxpayer. I mean, they've got 30 billion in assets under management, so 2 % of that is what? They're taking 1.8 % as an initial charge and 0.3 % as an ongoing. Yeah, but they've got 30 billion in assets and other management, which is forecast by the end. It was fairly expensive to set up.

43:19Oh, yeah, I'm sure. Call me cynical. They were just firing shots at one of them. That's the reason Nest exists. It was a backstop scheme. And, you know, through that lens, they've done a good job. And they've provided this universal proposition. I've not considered this idea that, you know, if you've got a chip shop owner that maybe Scottish Widows are like, you're not, you know. So I can... Scottish Woodhead is a commercial entity. They can't lose money setting up these little schemes or whatever. But no, I can get that. But yeah, it does seem that the billion in loans and then the 1.8 % fee, which is almost like another tax on workers, you know.

43:57Whereas if you're like Goldman Sachs and you go and knock on an employer's, on a pension provider's door and says, I've got these really highly paid employees. Can you set up a pension scheme? Oh, come on in. Absolutely. You like some champagne? We can offer you some pretty good terms. Yeah, yeah. So, I mean, that's how it works. So, in theory, you know, your employer can change pension schemes, and they do from time to time. There is an active market in consultants helping employers to shift pension schemes. But employers, I talked about this value for money framework that's coming in. In theory, that will help employers access information about the different pension providers in the marketplace, the services they offer, the charges they deduct, how their investments are performing, what their default fund is, that kind of information.

44:42The other thing an employer can do is use the services of a financial advisor or an employee benefits consultant who earn their money advising employers and acting as a go-between and facilitating the setting up of pension schemes. And that's what they do. And what should be the key things? Is it fees? Is it product range? So as an employer, you've got to make a... I think you need to be motivated a bit perhaps on ease of use, right? Because there's an impact on your business in the interaction you have with pension providers. And some are better than others in terms of their administration services and the interface with your payroll systems and the remittance of the contributions on behalf of your employees.

45:20And you want all that to work absolutely seamlessly. And if you've got a problem with it, you want to be able to pick up the phone and talk to someone about it. So from the employer's point of view, that may be a consideration in which pension scheme you select for your staff. And then yes, also you want to take a view on what kind of workforce have I got? Are they the kind of workforce who will actually just be happy with NEST because they're not going to think about their pensions at all and so I'm just going to give them that because it's a safe, simple default option? Or have I got the kind of workforce who will want a wide range of investment funds?

45:49Well, okay, I should look for a pension company that does that. What can I get in the way of most competitive fees? And then I might use one of those employee benefit consultants I talked about who will actually go and negotiate terms with the pension provider on my behalf and get the the most competitive fees that they can for my staff so all that sort of stuff comes into play okay i would i just think we i want to encourage everyone who's a member of staff an employee a business to take their pension as seriously as they take their wages and to look at this when they go at a job and go you know what's the match contribution you're offering me who's the provider and then once you're in that scheme go what is the default fund and should i be moving out of this into something that suits my risk profile because that simple decision alone no more money could double the amount that you end up with absolutely and you touched on something other things worth just staying on i agree with everything you said and that matched contribution thing is really important something some employers choose to do is to say well these are the default contribution rates damien but if you put in an extra one percent i'll put in an extra one percent or even an extra two percent i want to motivate you to put more money into your pension and i will i will go on that journey with you and if you put more in i'll put more in on top and you know that's that's worth doing that's so much as a self-employed person now i get my own benefits for pensions around corporation tax but there's no one doubling my money or giving me a match contribution i always worked a pretty terrible employee employers around pension contribute it was always like the statutory basics but i hear some people going if i put one in they put six in you know which is insane well i mean the other one should we talk about salary sacrifice yes okay so how can people understand the different ways that money goes into a pension right so the recent budget the the chancellor announced that she was increasing the national insurance taken from employers so so it was 13.8 percent so for every hundred pounds you get paid as an employee your employer has to give 13 pounds 80 to the government as an employer's national insurance well that's about to go up to 15 percent so for every hundred pounds they give you they have to give 15 pounds to the government Well, what you can do, and some very helpful employers do this, is they'll say, well, look, I want you to pay me£100 less, and I want you instead to put that£100 into my pension for me.

47:58That means I don't pay any income tax on that£100, and I don't have to pay any national insurance on that£100. And really generous employers, they don't have to do this, but some do, they'll say, well, because I'm now putting that£100 into your pension for you instead of giving it to you as pay, I no longer have to give that£15 to the government as my employer's national insurance. So I'll tell you what I'll do. Because it would have cost me that£15 anyway, because I'm a nice guy, I will give you that£15 into your pension. So instead of getting, let's say you're a basic rate taxpayer,£100 in pay means 20 % tax, that's£80, plus the national insurance I've got to pay on top of that as an employee, right?

48:36So instead of that, I could have£115 paid into my pension. If you're a higher rate taxpayer, it gets kind of crazy at this point because the national insurance rate that you pay drops to only 2%, whereas for basic rate taxpayers, it's 8 % national insurance. So let's say you're a higher rate taxpayer. You're no longer paying£40 in tax on that£100 that's given to you as pay and you no longer have to pay£2 in national insurance. So instead of getting£58 in your pay, you could have£115 paid into your pension. You've pretty much doubled your money. Boom, right? So that idea of salary sacrifice is a really efficient way to put money into your pension.

49:21And if you have an accommodating employer, it's really fantastic if they give you that national insurance as well. Not all schemes are salary sacrifice, are they? Do you think we'll see a bigger shift towards salary sacrifice because it's such a credible way of the employer reducing the NI bill? And because that cost has now gone up, so it's become more attractive to do the salary sacrifice. So yes, I think we'll see more and more employers doing that. It wouldn't surprise me if the Chancellor thinks about what she did back in the budget and increased the national insurance rate and says, hang on, I'm going to ban people from doing salary sacrifice.

49:51And it'd be quite complicated to do that. But in theory, she could stop people from asking employers to do what I've just described. Nothing like disincentivising people to save for that. During a pension crisis. So what I would say is if your employer offers salary sacrifice, think hard about doing it. Check what particular terms they offer it on because they might say, well, they'll give you half the national insurance savings. So check it out. Go and talk to your payroll department or your HR department or your boss or whoever's in control of this. Find out whether they'll do that for you. Salary sacrifice is a really efficient way of doing that.

50:23And if you're a higher rate taxpayer, it means you automatically get the higher rate tax relief. And as has been highlighted before, Or if you're a high-rate taxpayer, sometimes, depending on your circumstances, you have to go and claim the high-rate tax relief. Yeah, correct. So you might have to go and say for your tax return, by the way, I put money into a pension, you owe me an extra 20 % tax relief. Well, if you do the salary sacrifice, you just automatically get the tax relief because you're just not paying tax on that£100. So it's a more efficient way of getting your tax relief. Let's just pin on that a sec, just so it's really clear to people.

50:54If you walk into your HR department and you speak to them, you go, how is the money paid into my pension? If there's salary sacrifice, you're getting this benefit, and you might then go, okay, well, what happens to the NI you save? But the relief is... They won't do, sorry to interrupt you, they won't do salary sacrifice unless you specifically ask them to. Okay. Because my salary is£30 ,000. I would actually have to go to them and say, I want you to pay me£29 ,900. You're sacrificing your salary. I am giving up some of my salary. So they're not going to do that unless you ask them to. But if you ask them to, they might do it.

51:26And some employers are really generous and they'll write round to their staff and say, by the way, we offer a salary sacrifice scheme. Would you like us to do this for you? But the relief at SourcePoint is really interesting because this is another thing that people might be able to do this year that just earns them thousands of pounds out of nowhere. I made a video on this and a lady got in touch over Instagram and said, I watched a video. Me and my friend went into work the next day and we've just claimed back eight grand each. Wow. And she was like, that's... Because she was missing out on the high rate relief.

51:54She claimed about four years worth. You know, can you explain what's going on there? And I think it's 1.5 billion a year is not claimed. So this is like, there's a lot of money that's on the table. And people listening to this right now will be able to do this tomorrow. So some pension schemes will take your pension contributions out of your gross pay, which means you simply don't pay tax on that money that gets paid into your pension scheme by your employer. Great. So you've automatically had tax release because you just haven't paid tax on that money. But other pension schemes, as you've described, you pay the money.

52:23gets taken out of your pay, out of your net pay, after tax has been deducted, it gets paid over to the pension company. The pension company will then claim basic rate tax relief from the government. So you get 20 % back into your pension scheme and it gets paid directly into your pension scheme. Great. If you're a basic rate taxpayer, job done. But if you're a higher rate taxpayer or if you're a top rate taxpayer, you're eligible for another 20 % or 25 % tax relief from the money that got paid into your pension. But you won't get it unless you put that money on your tax return and you say, look, I paid£1 ,000 into my pension, you owe me some more tax relief.

53:00So you have to claim the extra money back from HMRC. You can call them, you can email them, and you can do a self-assessment at the end of the year. So if you go into your employer tomorrow and say, is our scheme relief at source? And they say yes, and you're a higher rate taxpayer, you could potentially do this. And you can go back four years. No, you're absolutely right. And you don't have to wait and do it in your tax return at the end you can just write to hMRC and say by the way i've been making these pension contributions you owe me some money yeah enjoy that people happy january that's why you listen to making money but yeah i know like the thing is you know say 40 000 people listen to this episode there's going to be hundreds of people that that applies to and and it's like a big big amount of cash isn't it because if you're paying you know for eight percent or four percent of your income times by four years it's a lot of money and i don't have the number in my top of my head but it's billions of pounds that goes unclaimed every year yeah yeah and and HMLC is surprising you're quite relaxed about yeah of course and you call me cynical I mean because most people who you know from most people who have a sip or whatever are aware of this they know that oh I need to claim that back it's this apathy again of the auto enrollment that makes people think everything's been done for me so you know it's they don't they don't realize that they need that to claim that 20 and it doesn't go into your pension you get it as cash in your bank account right yeah it's like you know you should put it into your pension that's what you should do but you do you just get a lump of cash don't you tax free cash and and if you if you've been missing out on it as you say there could be years worth of free money there it's not just that it's the four years bonus like happy birthday plus every year you can claim it again so going forward so potentially it's tens of thousands of pounds over a career that you can you can claim back you're welcome yeah yeah no thanks Thanks for explaining that because I kind of mention it all the time, but I think people can get a bit lost in their weeds.

54:47And I think, you know, what I want to do today is make sure that people have actionable things that they can go away with that aren't just go pay more money in. Get out of the default fund and check if your scheme is relief at source and claim back the tax relief and, you know, have a holiday on us or put it into your pension. Yeah. So what about, you know, what about people that aren't young so they're not getting a full stretch of auto-enrollment or they've just missed out on a DB pension because they were either slightly too young for those or not everyone got them. They're in their 50s, late 40s or something, and they're panicking because they're thinking, I've not got much runway here.

55:22Yeah, and there's not an easy answer for those people, and you're absolutely right to ask that because they are the people to some degree who've fallen through the cracks, right? So because of the shifts in the pension system, there are going to be people perhaps watching this in their 40s, early 50s, who are in that situation. and there is no easy answer to that. So all you can do at this point is save as much as you can and think about when you're going to be able to afford to retire. And I'd come back to that pension calculator question. Look at your situation today. Look at your income. Look at how much you might have saved already because you'll probably have some savings and then think about at what point you can afford to retire and what your standard of living will look like in retirement.

56:03But there's no magic parachute of money at this point. It's just we are where we are. The reassuring things at that age, Joe, are first of all, you're close to being able to access the pension. So it's not a 20-year thing. It's like if you're 50 or 52, you can access that money in a few years. So it's really, you could slam money into it if you can afford that and get the savings rate high, 25%, 30%, 40%. Because it's really tax efficient and then you get your tax-free lump sum. You get to see that benefit sooner, don't you? Yes, you do. I would make the point that compound interest, as you've talked about before, the longer you can leave it, the more investment growth you'll get, the better value you'll get back out of it.

56:40But that may mean having to work a bit longer than you would have liked. I was about to say, can those people just keep working, keep contributing to their pension and say, okay, instead of retiring at 60, I'm going to retire at 65. Or instead of retiring at 55, I'm going to retire at 70. And that may be a necessity. And then maybe you're into the realms of thinking, well, okay, how can I adjust my livestock? Can I shift how I earn my income? I don't want to keep doing the job I'm doing. because it's just not fun. I don't want to be doing this when I'm in my mid-60s. Well, okay, what else can you do?

57:05What can you train to do now that might serve you further down the line? You know, think ahead. There's some kind of consultancy work or stuff from a laptop rather than, yeah. Can we just talk about self-employed now? Because you made a really interesting point. This guy's happy. Yes, finally. Are you even self-employed? I swear you have a job. I'm still self-employed. I'm a contractor. IR35. Yeah, squiggly career guy over here. Yeah, no one knows what he does. He's like Chandler, you know, our friends. It's just like, what does he do? Business. Yeah, he just changes your import-export. Yeah, real shady character.

57:41With the self-employed, you said that there's been a collapse in the savings of the self-employed. What's going on there? So around 16%, I think was the last number, 16 % of self-employed people, one in six are still making pension contributions. Okay, whoa. Oh, so one in six are... Only one in six are still making pension contributions, right? Why do you say still? Well, okay, this is all. We shouldn't think of the self-employed as one homogenous lump. They're individual people, right? But only 15 % are paying into their pension. Yes, because understandably, pensions don't entirely work for you if you're self-employed.

58:22Earlier on, we talked about the inaccessibility of the money and how that's a good thing in terms of locking money away for your retirement, but self-employed leave a slightly more precarious existence than the employed population. And I can understand self-employed people feeling uncomfortable about locking money away in a pension. And month by month, you know, they're meeting their household bills, they're trying to perhaps to reinvest in their business activities. If you lock that money away in a pension, you don't get back, you don't get it back again until you're at least 55, 56, 57, 58, depending on...

58:5575. Yeah, because the age at which you can access your pension is going up, but it's locked away, right? So there is this alternative, the lifetime ISA, which offers similar tax breaks to a pension. Certainly if you're a basic rate taxpayer, there's no difference. You get the same 20 % top up from the government, right? But you can get the money out again if you need to. Now, you have to pay a little bit of a penalty if you do get the money out. So there is a price to be paid for that. If you're using the money in the lifetime ISA for either a house purchase or for your retirement, then all well and good.

59:28If you're using it for any other purpose, then you're going to pay a bit of a penalty. But if I was self-employed, a self-employed basic rate taxpayer, I'd probably do a lifetime ISA before I did a pension because of that accessibility question. If the worst case happens, you can get the money. Correct. You end up worse off because they take 25 % off, don't they? If you've got a nice chunky sum of money sitting in the bank, right? If you've been fortunate enough to build up a cash reserve so you've got good financial resilience, then you might say to yourself, I don't worry about locking money away in my pension now because if the worst happens and I can't work for a while or I can't earn money, it's okay.

1:00:04I've got this financial reserve. I'll be fine. I can cut down my outgoings. That might be you. And if that's the case, maybe you think, well, I am going to put money into a pension. And if I'm a higher rate taxpayer and I'm going to get 40 % relief because I came it back, because Damien told me to, right, then maybe I'm going to decide a pension is still a better deal for me. Or maybe I'll do a bit of both. But I think the whole pension retirement savings proposition as it exists in the UK today and the tax treatment of pensions, I can see why for a lot of self-employed people, it just doesn't look super attractive.

1:00:35And then some of them will say, maybe I'll buy a house instead. Or, you know, I've got together with my partner and so we've ended up accidentally owning two properties let's keep both those properties and let's rent one out as an investment property and that'll be part of our retirement saving strategy and we'll maybe do lifetime isis so we can get the money if we need it or we'll just we've maxed out on lifetime isis let's do conventional isis as well because there's a cap on how much you can put into a lifetime isis so i get that for self-employed people a pension yeah that that inaccessibility of the money maybe that doesn't work for me so i'm i'm a limited company director and from my perspective the pension contribution is the best thing I can do because it basically the problem you have if you're a limited company director I mean it's a first world problem is you can't get the money out of the business so because you pay the corporation tax um you know 20 odd percent 20 plus whatever if I then pull it out, I pay dividend and income related taxes.

1:01:31Yes, you can't avoid it. And once you're at a higher rate of dividend tax, you're talking like effective tax rates. They're like 60 % once you come. If you say like, okay, the corporation tax is a business tax, but I'm paying both sets of taxes. Any money I pull out, I'm getting 40p in the pound or whatever. Whereas with the pension, I can slam it all in and get it out. Or you can make an employer contribution into a pension. And I pay no corporation and I pay no dividend. And I've got it out of the business into my own name, essentially. And I will pay tax on it at some point, but it's much more favourable.

1:01:59so to hear you say that you you don't think they're attractive is is that because people don't understand that or is it because most businesses are sole traders well you asked the question about self-employed people so if you're not incorporated i think okay yeah okay so i technically i'm an employee of a limited company yeah yeah yeah you're right so i think that's the distinction i'm making there yeah but i guess i guess the same dilemma uh you have to consider is is you know as a business owner okay you're incorporated fine but you're still making that same decision am i happy to lock this capital away um you know what kind of reserves to my business does my business have what kind of reserves do i have if i can't keep working for a period of time am i going to be okay so that overall financial resilience that you as an individual enjoy i would i would suggest is is part of the decision making process here so when you you know because as a self as a limited company director i don't i identify as self-employed but you know from a technical perspective i'm not so the stats where you said only 15 % of self-employed people.

1:02:59I was talking about actually self-employed people, of which there are several million in the country. And this is sole trader kind of? Correct, yes. Or delivery drivers or whatever. Okay, okay, yes. So this makes more sense. So I'm not familiar. Are you a sole trader? I'm a sole trader. He's a big boy with this company. I'm an employee, mate, it turns out. I've had it taken away from me. I want to be an entrepreneur. Have you got a good boss? Yeah, yeah. He's a bit of a dick to me, I think. He eats a lot. His boss eats a lot of food. He loves the pies. He do. So yeah, for sole trader, I'm a sole trader, but I'm thinking about limited company.

1:03:37What do you think is, obviously it's very hard to say, but what are the pros of being a sole trader and investing towards your pension and being a competitor, being a limited company? Yeah, what are the structures for sole traders? Okay, and I'm not going to go too far down this rabbit hole because I'm not a tax expert. And I think there's a risk the tail ends up wagging the dog here. So the decision as to whether to incorporate or not probably shouldn't be driven purely by, is this the most efficient way for me to save for retirement? You should probably be looking at it in terms of, is this the right business decision for me to make?

1:04:06And the different tax treatments you get, depending on whether you're incorporated or a sole trader, you know, that's what should be driving that decision-making process. I think for all the reasons Damien's touched on, if you are incorporated, you've got more choices about how you fund your pension and ways that you can use the pension tax relief system to your advantage. Whereas if you're a sole trader, you're just generating profits, you're generating, you're charging fees to your customers or clients or whatever. And then you've got to report that at the end of the year. I think one of the difficulties with all of that and I hear this a lot from self-employed people is just the commitment to make regular contributions to a pension, right?

1:04:47So if you're in a workplace pension scheme you're getting a salary every month your employers put you in a workplace pension you've got deductions being taken it's just happening for you. If you're self-employed your money probably is fluctuating a lot more it goes up and down that decision to make a commitment I am going to put£100 a month or whatever the number is into a pension month in, month out, that's quite a hard call. So maybe you think, well, I'm not going to do that. I'll just do a once a year sweep up. I'll put a lump sum in. And maybe that works for you. But that's a more high-risk strategy in terms of making the investments because you're putting a lump of money into the stock market in one go at the end of the year.

1:05:25And maybe you get to the end of the year and think, I'm not comfortable taking a big chunk of money out of my profits this year and putting it into a pension. Maybe I'll skip it this year. It becomes manana, manana. Yeah, and I think the discipline of making that regular contribution has some virtue as well. You literally, it's like you're watching me from the cupboard, seeing what I get up to. Like every quarter. You wouldn't want to do that. You would not want to do that. You'd burn your eyes. I don't want to see anymore. This has taken a dark turn. I do like quarterly contributions, but there have been quarters.

1:05:57There were quarters last year. I was like, maybe not now. I'll do it like next month. I'll do it next quarter. And then you just don't because other things come out. I'll put it in my ISA this month and maybe next month I'll do my SIP and then it always seems to get pushed away. So, yeah. And there's no easy way around that. I know the government is thinking about this and, you know, the government is thinking, well, we've kind of solved the employee problem with the whole auto-enrollment program. We've certainly made a big step forward to getting everybody into a pension. How we do that same thing for the self-employed, that's not easy.

1:06:25And whether you end up with digital platforms that self-employed people use for their tax reporting solutions, you know maybe that's where we go in the future but just creating that mechanism that means that the majority of self-employed people are making a regular saving contribution for their retirement is not simple and i come back to the point i made earlier that if i were a basic rate tax paying self-employed person i'm not at all sure i'd use a pension anyway yeah i might i might use up a lifetime isa first and then go to pension could you just tell people about the limits on lifetime isas i think you put in foreground you get one from the government correct yeah you tell them too yeah i might be familiar with a lyser or two you know i might have put it a little bit here and there um is the maximum you can put in in a year five four thousand yeah so but if you have your partner um you can in your household you can put in eight thousand and then the government will give you two thousand between you and you have to be under the age of 40 when you first open a lifetime isa and then you can keep funding it till you're the age of 50 and and you know a lot of people have argued that that's one of the things that should change that lifetime isa should be more broadly available and that people should be able to come along at the age of 45 when they first become self-employed and get like, now I want to open a lifetime ISA.

1:07:39I will never have a lifetime ISA. Why? Because I was too old. So when they were first introduced, I was already over the age of 40. Everyone who's 39, actionable. If you're a sole trader, look at the lifetime ISA. Just open one up. Open one up while you can, yeah. But the thing, the key distinction is as well, cash versus stocks and shares, right? So you should treat it like a pension. You'd probably invest it. So you'd be looking for a stocks and shares LISA. If you're happy to put it in for the long term. But you might be thinking, well, I need to get that money again. Property. Yeah, but then the penalty.

1:08:14Because you're going to end up worse off than when you're in. I agree with you. Don't put the money in thinking I might have to pull it out again. Put the money in, invest it, make it grow. And then if the worst happens, well, at least you can get it, even if it's at a bad moment and the stock market's gone down a bit. at least you can still get hopefully most of your money back. The government, I was really disappointed in the budget from a few months ago that they didn't remove that penalty. They didn't look at ISIS at all in the budget. I guess she talked for an hour and 17 minutes. It was all big picture stuff.

1:08:42There wasn't much retail stuff. Well, if you look at the breakdown of the tax receipts or the forecasts, I mean, I know you can't really look at those numbers, but they say that by 2030 they think they'll be raising 600 million a year from ISIS, which is fiscal drag, I'd imagine, by holding the band. So I think doing nothing with ISIS is the exact thing they're going to do long term in terms of you get your 20K and we're just going to hold it. So, and you had Liam Byrne on here a lot longer ago, didn't you? Who's really good. He's a great talker. Let's not forget, he's the guy who said, I'm sorry, there's no money left.

1:09:14I've been back in 2010. I think he hasn't forgotten that. He lives through that, doesn't he? Yeah, so I think they, you know, this government faces a lot of challenges. I think they are very, so one of the new members of the government, Torsten Bell, ex-Resolution Foundation. The 100K limit. Yeah, exactly. So I think there's some of that thinking going on. He deleted every tweet as soon as he came into office. Very sensible of him. I think that was like, you know, some hard left think tank piece that pinned anyone with a more than 100 grand is rich. And I was very critical of it. torston we haven't forgotten no no no no and if it's yeah and i think you know i mean it was the resolution foundations paid the 100k cap it'd be disastrous it'd be stupid because people with 100 grand aren't rich you know not 100 grand in retirement savings but are they working people yeah yeah yeah well anyone who trades time for money there's probably a working person right But yeah, who knows?

1:10:14So the LISA thing, attractive, but it's this key point of if you take money out and you're not buying your first home or you're 60, you're going to have less money than you put in. Yeah, you pay a 25 % penalty. And so it's effectively a 6.25 % penalty relative to what you got from the government in the first place when the money went in. So there is that. In extremists, you can at least get in your money, which you can't do with a pension. so for self-employed people maybe we're back to that mix and match approach maybe you do a bit of both a bit of pension particularly if you're a high rate taxpayer you get the higher relief on the pension a bit of lifetime ISA to get the accessibility and a normal ISA yeah and a normal ISA let's hear it for normal ISA they're definitely more attractive they're getting more attractive aren't they because of the changes to pensions we'll get onto that in a second but yeah I think if you've got concerns when I first went self-employed as in when i first became whatever yeah yeah when i first became an entrepreneur or whatever you want to call me i'm a bloody content creator when i makes videos in my spare bedroom for a living i i was paranoid that it was all got the wheels were going to fall off and i just sat on cash and i can really empathize with that and especially if you're not a high earner you know you talk about gig workers people who are doing uber eats they might think or just ubers in general if i have a bad day i've got no money so i can't just fire it away yeah they need to make the pensions for those people no-brainers because for the for the employed it's a no-brainer get the match contribution for me it's a no-brainer get the money out the limited company without being rinsed on tax for them it doesn't seem like a no-brainer one of the ideas that's been doing the rounds and we have to credit your friends at nest for coming up with this in the first place is is this idea of a sidecar account, that this would run alongside a workplace pension.

1:12:0710 % fee. It doesn't necessarily be like, we'll run it at 10 % fee. Let us a billion to set it up. So there's been talk about, I mean, there's legislation that's been passed to change the auto-enrolment rules, to reduce the age to 18, to get rid of that £6 ,000 disregard we talked about earlier on. Oh, okay, yeah. So the argument is, well, look, if we do that, let's not hit every, because that then means an increase in contributions and that might unsettle some people. Hang on, the amount I pay into my pension has suddenly gone up and I could only just about afford the, well, what we could do is the increased amount that you're now being taken out of your pay to go into your pension, we could not pay it into a pension.

1:12:41We could pay it into a sidecar account, which is a cash account that would sit alongside your pension. And we're just going to make it easy for you to build up a household financial reserve of cash. For millions of people, that currently doesn't exist. Millions of people have very little in the way of spare cash in the bank to cover unexpected eventualities. So just helping them to do that and get to the point where you've got hundreds or maybe low thousands of pounds as a reserve account to draw on then come back to our conversation about risk then makes it easier for you to take more risk or to lock money away in a pension or maybe boost the amount you're putting into a pension because you know you've got that an auto enrolled emergency fund exactly yeah exactly and and and the one of the concerns is well yeah but we could help people do that and they'll just keep taking the money out yes they might but not everybody will experience suggests that quite a lot of people would go oh thank you that's actually quite handy for me you found a way to help me build up a cash reserve that i wasn't quite getting around to doing myself because like tea i keep going no i'll do it next quarter and you know yeah so holiday time yeah how how um nanny state do you think we should get with these kind of things well we have a we have a labor government they're they're kind of uh more inclined to being in any state look um i think auto-enrollment was a good thing.

1:13:56It repaired a failure of the pension system because you no longer had automatic membership. Participation rates were collapsing. We weren't saving enough for retirement. Auto-enrollment has turned that around. So I'm kind of okay with that, but in any state. I think probably I'd argue the same is true around the sidecar account, that with the best will in the world, a lot of people don't have that household financial resilience, and that is critical to enabling them to be more entrepreneurial, to take more risk. You take risk if you're doing it from a solid foundation. If you're in a precarious situation, it's really hard to take risks.

1:14:32So if a bit of anastatism, a bit of nudging, helps people build those foundations, personally, I'm okay with that. Yeah, I do agree that one of the things that I say is that whilst investing didn't make me rich, what it did allow me to do was jump when the opportunity came in terms of the YouTube channel and it allowed me to turn my back on my career. Whereas, you know, because I was earning good money, there's a lot of people out there that are just so on the line, even though they're earning 100 grand a year, they're thinking, I can't leave this job because how am I going to feed the kids and pay my mortgage?

1:15:05If it goes wrong for a couple of months, I'm in trouble. I'm eight weeks from bankruptcy. You know the stat of like, most people, if I said to you, if you didn't get paid for two months, would you survive? The answer is no, without going into extreme debt. So I do think, you know, it's a nice idea that if we force everyone to have an emergency fund, maybe people would start being more entrepreneurial and maybe there's some growth there to be had. But it would need to come on top of the pension contributions because otherwise the people were just rinsing it constantly. We'd just have a cash savings account and never save a pension.

1:15:34So would you be saying 8 % auto-enrolment plus a 2 %? So that was the logic is we need to do this increase to auto-enrolment because there's a general consensus that the 8 % probably isn't enough for most people. So if we're going to make the increase of the contributions, could we do it by initially funneling some money into a sidecar account and then maybe redirecting it into a pension subsequently? You know, the stuff that could be done there. I talked earlier on about how there's that bunch of people in the kind of mid to high income brackets who are probably the most undersaved at the moment in terms of retirement provisions.

1:16:09So another thought process is, do we start modifying the auto-enrollment amounts and say, well, people on 20 grand a year, given that generous state pension relative to their pre-retirement income, they're mostly okay. We don't need to get them to save anymore. And it would probably just damage their standard of living today if we'd started taking more money out of their pay packet. So we'll leave them where they are. Those people on 50, 60 grand a year, we need to get them to put quite a lot more in. Let's get them up to 12%. People on over 100 grand a year, well, they're a different proposition again.

1:16:36So maybe one direction we go in in the future is we actually start having more than one auto-enrolment rate. And part of that could involve channeling money into the cash accounts as well there's you know there's a lot of directions we could go in with all of this what i would like to know is your opinion on just the conversation around pensions where should that go like you know we seem to be making all these decisions for people in the background and they're not explaining them to yeah so what worries me and so the the virtue of auto enrollment is it was just done it was defaults all the way let's not let's not worry people's heads about it and then people kind of go oh i'm in a pension now that's great Thanks for that.

1:17:10Right. But they're not thinking about it. So that's a problem because we have to get to the point where people are more engaged with this and are thinking about it. And then I think when you take a step back, we talked earlier on about the state pension. What are we trying to achieve here? You know, what does good look like in terms of the level of state prevention, provision, the level of risk exposure from the state to longevity? You know, if the population ends up living longer than expected, how much of that burden needs to be carried by the taxpayers of tomorrow, to what extent should we be getting people to make their own retirement savings provision and owning those retirement savings provisions and thinking about what money they're putting aside, you know.

1:17:48And so if you're diligent and you save well and you invest well and you prosper, well, you know, you'll be rewarded for that, as opposed to the Torsten Bell mindset, we just want to punish wealth accumulation, you know. So I don't feel like we're having that big picture conversation around what what does a stable structure for the state pension look like over the next 20 30 40 years that gives people that confidence to save for retirement yeah there was in the recent budget the last one we had there was some quite big changes around how pensions will be treated from an inheritance tax perspective all my friends who are financial advisors were saying this is a very big deal even though it didn't it wasn't made a big deal in the budget what do you feel about it and how how should people approach this yeah i'm really glad you've It's quite a subtle change, but it's quite an important change that I think will have quite widespread implications going forwards in terms of how people view pensions.

1:18:39So hitherto, pensions have essentially been free from inheritance tax. And changes George Osborne made back in 2015 means that you could pass on the accumulated value of your pension fund largely tax-free. So if you died before the age of 75, the money just could go to whoever tax-free. Brilliant. Fantastic. Couldn't be better. after the age of 75, if you pass the money to your spouse, then it's still tax-free. But to anyone else, it becomes subject to income tax at the point they draw the money out of your pension. Actually, even if your spouse draws it out of the pension, they'll pay income tax on it.

1:19:15It becomes subject to income tax. So what's changed is that as a result of the budget, the pension pot will also be subject to inheritance tax. And it will still also be subject to income tax if you die after the age of 75. So you've got effectively double taxation on the money. So where up until now, I know a lot of people, wealthier savers, were saying, I'm using my pension pot as part of my inheritance tax planning strategy. And in some cases, we're actually drawing on their pension last, because that was the most efficient way to pass their wealth on to the next generations, and drawing on things like ISIS instead beforehand.

1:19:53From when the changes come in in 2027, your pension pot will be subject to both inheritance tax at the point of death and income tax as well when the money gets drawn out. So it means preserving the capital in your pension pot has got significantly less attractive. And I think one of the consequences of that is people will, one, draw down on their pensions a bit more readily than would have been the case otherwise, but possibly also will be more inclined to look at those annuities we talked about before because you optimize the lifetime value of the money by buying an annuity and exchanging it for the optimum value of income you can get before you die.

1:20:31And given how much tax is going to go when you die, it's perhaps better to have the money up front. And indeed, one thing you can do is draw the income out of your pension pot. Okay, you pay income tax on it, but then you can actually use that income to gift money to your dependents and get it outside your estate for inheritance tax purposes before you die. So I think it's going to change stuff. Buy an annuity and gift the money from the annuities. Potentially, yeah, exactly. Exactly. So I think, and also because of that change to the IHT rules, people perhaps in their 40s and 50s who would have just kept shoveling money into pensions as an IHT shelter are perhaps now going to be more inclined to try and find other ways to pass the wealth on.

1:21:09Do you, so, you know, the Chancellor was very clear that only a fraction of households, 6 % maybe, or whatever, pay inheritance tax on an annual basis. But this is because the largest asset outside of homes was sheltered. Do you think now we're going to see a big jump in the amount of households that have an inheritance tax pay? I think it's going to go up for sure over time. And I can't give you a number on where it's going to go to. but I think in the meantime it's going to change how people view their pension wealth how they view pension saving and how they draw down on their accumulated wealth in retirement my mum went how do I give you the money without it being taxed I just went just spend it mum spend your bloody pension do you know what I mean and I know a lot of people would disagree with me on that basis but I think you know I don't want my mum to think and they want to look after you and I get that and I've got a son and I want to look after him But I also just want my mom to live a life, you know, and I hope this promotes her to like go a bit mental.

1:22:06We did some research a couple of years ago looking at equity release. And the question was put to people in their 40s and 50s. How do you feel about your parents' generation drawing down, because it was in the context of equity release, drawing down on the value of their house to supplement their retirement incomes before they die? Bearing in mind that's your inheritance. and what was interesting is that there was an overwhelming response in favour of the parents drawing the money and, you know, don't worry about my inheritance, it'll be nice if I get anything, but in the meantime, you have my permission, go and spend the money, enjoy your retirement, exactly what you've just said.

1:22:46Yeah, I mean, there is considerations around care though, right, in terms of that's very expensive and that's often what the house pays for, you know, the house gets sold essentially for care. And that's still an unsolved problem And really, we need some kind of backstop insurance scheme in place that says you will pay this much and no more if your care costs arise. Okay. And then maybe you could say that that element of the pension is you can access that for care without taxation. Exactly. And you say everyone's lifetime care allowance for a basic level is maximum 100K or something. And if you want to go and live in the Bahamas, you can spend that.

1:23:24But even the bog standard stuff is super expensive, right? If you live too long. Exactly. So the interaction of your housing wealth, your pension, your care system, it's all connected. Yeah, it's fascinating. Because it's going to be a lot of this rolling down the hill over the next 10 to 20 years, isn't it? Yeah, I mean, the government's got a review of pensions going on at the moment. So I think things are going to keep changing and keep evolving for all the reasons we talked about. You know, it's this big picture stuff, a lot of money involved, a lot of pressures on the system. You know, there's a reason they're doing a pension review at the moment because they know stuff needs to keep evolving.

1:23:56Are you optimistic that they will improve the pension situation? I think so. What's interesting is, it's a really good question, what's interesting is that their focus at the moment is on productive finance. It's on consolidating the pension system, ending up with fewer, bigger, better-run pension schemes. And one, that's not a bad thing in its own right because it will drive more efficiency in the process, but also they want to do that because they then want the pension schemes to invest more in the UK economy and productive finance. And that's great if you're the government and you're trying to make the economy grow, it's not necessarily in the best interest of the pension scheme members who, for reasons we've already talked about, might prefer to have their money invested in a global index, for example.

1:24:35So there's that. That's the first phase of the pension review. The second phase of the pension review is to look at this question of adequacy. How can we tweak the dials, pull the levers, to try and get to a point where more people are saving at a more appropriate rate for their retirement, and how can we help them do that? You spoke about that last time, actually, the smashing together of the pensions and saying that then we get these big pots, say like Canada, where we can buy infrastructure projects or whatever, rather than all these snouts in the trough was the exact word, all the mini trustees.

1:25:04There's still a lot of enthusiasm for that to happen. A lot of snouts. So the pensions industry is really good at throwing logs on the tracks and making sure that the pigs never actually get taken off to market. Yeah. Are they speaking to you? Are the government speaking to you? I have conversations with people in the government. I've not spoken directly to the pensions minister about this. We should be speaking to you. Thank you. No, I think so. Every time I talk to you, we end up talking broadly about pensions because I just think your view on the system is so amazing. But I just want to bring it back to the practical steps of the state pension.

1:25:40We've got to assume it's going to be there, but probably do assume it won't be there. It depends, doesn't it, for us and for someone who's like 50. I would say you've got a pretty high level of certainty. For someone in their 20s and 30s, you'd be like, oh. It's a bit blurrier, right? I mean, to talk about someone in their 50s, yeah, I think there's a pretty high level of certainty that the trajectory won't change drastically from where we're at at the moment. You have to do 35 years of national insurance contributions to qualify for the full state pension, which most people will achieve one way or another.

1:26:14But if you haven't got 35 years of national insurance contributions, you can make that up, and that's a really good thing to do. You think they should? They should pay that? Absolutely. Anyone at any age? No. After you work in a career. If you get towards the end of your working career, it's worth looking at that and saying, am I going to hit 35 years? If not, can I make up some years? So loosely, the numbers are you pay a bit over£900 to buy an extra year of national insurance history for the state pension. How much, sorry? A bit over£900, right? And that buys you an extra one-thirty-fifth of your state pension.

1:26:49Buying extra one year of state pension, and you have to do 35 years to get a full state pension. So extra one-thirty-fifth. One-thirty-fifth of the current level of state pension of£11 ,500 a year is a bit over£300, right? So to pay£900, you're getting over£300 of additional retirement income from the state, which means you only actually need to live for about three years to get payback on that money. So yeah, if you're approaching retirement and you've got some gaps in your NI record, it's worth buying the extra years. And yeah, I think if you're in your 20s, it's a bit less certain, but there will still be some state welfare provision further down the line.

1:27:29And if there isn't, we've got bigger things to worry about. How do you check how many years you have qualified for for your state pension? Really, so you can do it online. You go to gov.uk. So, you know, the government websites are actually pretty good these days. I really like the way they've designed these really nice, clean, simple web pages. So if you just search, check my national insurance record, you'll very quickly find your way to the website. Bang in your national insurance number. Exactly. And then there you go. Date of birth. And they'll come back and very quickly they can tell you what your national insurance record looks like.

1:27:58Amazing. So employers' pensions, obviously matched contributions, maximise that. Look to get out of the default funds if you can. Or at least ask yourself, am I happy with this default fund? Do I feel it's the right one for me? and Damien's got his own opinion on whether it is the right one. You might even call it an agenda. I'm pretty passionate about it. No, but I want to come back to that and say, being in the default is okay. It's okay. It's a fund and it's better to be in it than not. And if you look at it and go, there'd be people listening to this where they're only just getting into investing and then I'm saying, go make a fund choice that dictates your retirement.

1:28:37Nothing is permanent and you've got lots of years. so just look at the default for a couple of years go and say what is it what's it doing and then maybe just monitor it for a couple of years and then in a few years once you've built some experience it's like you know getting my son and go and telling him to cook a sunday roast and the first time he's ever stepped in the kitchen he starts with a bit of beans on toast do you know what i mean and we build from there and i think but the important message is it's worth getting involved it's worth going into the kitchen you should you need to log on you need to log on and know what it is because your pension is going to be the most valuable thing probably you ever own so engage with it i think the other thing the things i wanted to come back on again the the salary sacrifice point is really valuable you need to go and ask your employer if they offer salary sacrifice you also then want to look at relief at source and if they're saying yes it's relief at source and you're a higher rate taxpayer can you claim some money back if you're self employed try and pay some money into a pension on a regular basis um would that be a sip product doesn't have to be but yeah i mean it gives you the most investment choices a personal pension lifetimes yeah look at the lifetime ice as well think about maybe a bit of both think about what balance works best for you yeah and if you're a limited company director there's loads of benefits there so get get your head around those and then um how often do you think people should be reviewing their pension and making depends what investment choices you've made so i'd say for everybody at least once a year.

1:30:05We talked about if you made some racy investment choices, then maybe a lot more frequently. So I think investment choices should be an influence in how often you look at your pensions and monitor the performance of them. But I would suggest at least once a year, just take a step back, you know, what's changed in my life? How much am I earning? What around my circumstances have changed? How's my pension performing? Get an updated projection, because I said you know these assumptions will all be wrong so just keep updating them and it's like a guided missile that keeps missing and correcting and missing and correcting and eventually it hits its target right so so you have to keep correcting course as you go along okay and i asked you a question last time and i want to ask a similar question are you optimistic about the future of pensions in the uk and the ability for working people to retire comfortably and well maybe like their parents did i'm reasonably optimistic i think a lot of the tools are available to us i think a A lot depends on economic growth and how well the economy as a whole prospers.

1:31:05Back to your point about investing outside the UK, you know, hedge your bets don't just invest in the UK economy, invest in the global economy. But yeah, the tools are there. I think it's going to get harder. I think the generation immediately before me, the baby boomers who all retired with those generous final salary pensions, they had the best of it, right? Gen X a bit less so. So there's more challenges further down the line. but I think there's also more opportunities and more ways you can save retirement. So I'm more optimistic, but I would absolutely encourage, you know, to echo your messages.

1:31:35You need to kind of get involved and think about it for yourself. It won't happen by accident.

1:31:46We hope you enjoyed that episode. So sorting out your pensions is one of what we think are the six steps to sorting out your finances. We've outlined what the others are in detail and what you need to do in a newsletter series. And you can access that below in the description. Got anything to add to mine? Didn't think so.

1:32:07Please remember, this is not financial advice. Like we say a lot on the podcast, investments can fall and rise. In fact, it's pretty much a guarantee. Past performance is no guarantee of future results. So your money is at risk with investing and other fees may apply. As with everything financial, please do your own research. We really encourage that because no one cares more about your money than you. I'm Damo. I'm T. This was an episode of Making Money from our company Most. It was filmed and edited by the team at Flow Spire, Jack and Ben. It was produced by Ruth Edwards and brought together by Will Stallerman.

1:32:38What about Ruth and Toothless a Dog? Yeah, shout out them too.