Pensions Special: Double your investment, how to start one, are workplace pensions good, consolidation & more

24:25That doesn't apply for you. You get the same tax relief, but the way it is worked works differently. So this is what happens. When you put money into your self-employment or your private pension or the NEST pension scheme, 20 % tax relief is automatic. In other words, you put 80 quid in and£100 is then invested for you. That happens automatically. You don't need to do anything. And that continues up to the limit that you're allowed to contribute. We discussed those limits earlier. If you're a higher 40 % or top 45 % rate taxpayer, you still get that 20 % automatic relief, but you can claim the rest of the tax back via your annual self-assessment tax return.

25:02Now, it isn't added to your pension. It reduces your tax bill on other income instead. So you may actually want to put a little bit more in your pension to cover the fact that you're not getting that directly into your pension. You'd gain it elsewhere. But if you're self-employed, you do still get the same tax relief. You effectively get that superpower number one. You don't get superpower number two because you don't have an employer to contribute, though. Now, I've got some questions here for you, Charlotte, on self-employment. First one's a complex one. Grace, I'm 42, self-employed and currently funding my own pension with the LISA scheme.

25:33Just to be technical, the LISA scheme isn't a pension. It's a retirement saving scheme. A pension is a specific scheme with specific tax treatment. LISA works differently. It's basically an ISA that you can save for your old age, but you get 25 % on top up to£4 ,000 a year you contribute. I want to go back to uni for a PhD full time. The course is funded with guaranteed work after. Well done. And a good salary. Would it be wise to take money from the LISA for living expenses for the two years? Quick break from me. If you take money from your lifetime ISA, you cannot be 60 yet because you could only set up a lifetime ISA in 2017 and you had to be under 40 to open it so you cannot be at the point where you can take money from a lifetime ISA without paying an effective 6.25 % penalty in other words for every grand you take out you're going to get 937 quid so taking money out of a LISA is a very expensive thing to do unless you're doing it to buy a first time property or you're doing it once you're age 60 I'll continue with your question I'm answering it as we go would it be wise to take money from the LISA for living expenses for the two years, knowing that my salary and contributions to pensions could increase once my salary raises, once the course is over.

26:39I know I lose a 25 % government contribution. No, you lose more than that. You get a penalty on top. I've got Martin's voice in my head saying, I'm now going to do an impression of my voice in your head saying what you said it says. You can borrow money for university. You can't borrow money to retire. But I'm not sure it's the same advice in this instance. Well, I think you just have to be careful of how you're borrowing. I mean, first of all, I'd say for me, in most cases, a LISA is not as good as a pension. You don't get the tax relief and you don't get the employer's contribution. But your money is in the LISA now.

27:08Charlotte, what do you think of this? I agree with you. Everybody's situation's different, so there may be other things to consider in it. I'd go get a bit of guidance around what your best options are. But to your point, you can't put that money back in in the same way. It's going to stop working for you. So if you can avoid using it and look at other ways to support you, we would always say that that's what you should be thinking about. Yeah, if you've got any other form of savings you could use, maybe you would be using that to support you and not the LISO money to support you. But if you have to use the LISO money, you have to use the LISO money.

27:38And yes, then you'll have a proper pension coming in afterwards where you'll get the tax relief and you'll get the employer's contribution and hopefully it'll go quickly and you still have the LISO or some form of savings for your retirement. So, but yeah, now when Charlotte says guidance, what she's talking about is call up or go online or use the chat services at Money Helper. Pensions, I was going to call this a superpower later and I was going to do it later. I'm going to do it right now. I'm going to talk about it right now. With pensions, it's one of those few areas where free one-on-one impartial help and guidance is available and you should use it.

28:09It's funded by a government levy on the financial services industry. I get great feedback on it. Over 50 can speak to pension-wise, which is generally to talk about taking your money out of your pension when you do that. Everyone else, Money Helper, you can find both at moneyhelper.org.uk or call 0800 011 3797. Charlotte, what are the limitations to guidance? What can your organisation do and what can it not do? It's important for people to understand. So the key rule is we'll talk to you about the options, things that you should be thinking about. We'll help you think through potential implications of decisions that you might want to make.

28:44But what we crucially won't do is we won't tell you what to do and we won't tell you what product or service to buy. So we won't do a full fact find, which is what you would have if you went to see a financial advisor. They'd look at the real detail of your circumstance. They'd want to know and see your bank statements. We won't do that. We'll have a conversation with you around what you're trying to achieve and what your circumstances are. And we'll support you as you think through those options. But it's good technical advice. You want to know how your scheme works. You want to know how the tax system works.

29:13You want to know what the risks and pros and cons are. What you won't get in guidance is someone saying, you should do this. You should go and get this product. and this is how much you should put in this and this is how much you won't. But for me, because this service is available and it's free, it's a great first step. And if you're not getting what you want from it, well, then absolutely I am a fan. Look, you can make such big mistakes in your pension. I am very much a fan of paying for financial advice. You know, find yourself a good independent financial advisor. The truth is because you're paying a fee, unless your pension fund's in the 50K or more, it's probably stick with the guidance and do the best that you can because they're just not going to take you on as clients it it just doesn't work the mass doesn't work for you and it doesn't work for them at that point but if you have a decent sized pension fund absolutely you can go to a pension advisor you know loads of you are asking about consolidation we're going to be talking about that in a minute and they can absolutely look at every single one of your pension plans to see whether you should consolidate or you should actually set up a new one and move it all into a new one and which one the new one should be and how much you should put and what where and which and why.

30:19That you get from advice. What you get from guidance is, frankly, 1 ,204 of you have asked questions on this pension segment. When I look through the questions, okay, I didn't read everyone. But as a percentage, I would say 90 % of those questions that you were asking, guidance would answer because you were asking, how does this work? You weren't saying, what should I do specifically? And those how does this work questions, you can get a free one-on-one answer. So please listen to this programme, get yourself a good basis, but if you're not sure if there's anything on the back of this you don't understand or you're going, but how does that work for me because my circumstances are nuanced different, call up and get one-on-one help.

31:03It's totally free. By the way, I do not do advertising and I am not paid by the Money and Pension service. I just think it's an absolute no-brainer that this is a free service out there that's impartial and funded by a government levy you don't have to pay for before you make a decision that could really mess you up, I would go for it. So now a couple more questions from the self-employed people. Suzanne, self-employed advice would be great. I have various pensions from my past, but none since I'm self-employed. And Tana, best workplace pension for the self-employed. So what we're really asking here, Charlotte, let's go back to basics.

31:36Someone who doesn't have a pension, first place you go is if you're an employee, you use your workplace pension. If you're not an employee or you can't buy any more on your workplace pension, where do people go? What type of pensions should people be looking at? I know you can't give specific products, but what are the different types of pensions that they should be considering? Well, the first one is, as you've already mentioned, which is looking at things like Nest. So they were set up by the government to provide a place for everybody to be able to go to. and they are looking at low cost, they're set up to be delivering most of what people want.

32:12But for self-employed people, you're looking at SIPs, Self-Invested Personal Pensions, or what are called SAS's, Small Self-Administered Scheme. SIPs and SAS's are particularly popular amongst the self-employed because they may give you different types of options. It gives you different ways to be investing your money that may also help support your business. So those are kind of three areas. So you've got your basic products like Nest. And stakeholders. And stakeholder schemes. And there'll be other, you know, the big names will be offering certain things that may be of interest to you. Then you've got different types of schemes, SIPs and SASs, that may cater to your needs.

32:51There are different overheads with schemes like SIPs and SASs. So there are responsibilities that you need to take on if you set them up. Can I just check? When you say help you with your business, what do you mean by that? So a lot of self-employed use Sips and Sasses because they provide ways to allow you to also invest your savings into your business. Maybe buying a property for your business or something like that. Exactly. Or if you've got a growth or expansion plan. So they are popular, but they come with heavier responsibilities and heavier costs. So I'm going to filter in some of these as well because I was talking to a financial advisor, Sarah Lord, on my ITV show, if I'm being really honest.

33:30I'll just filter her answer as well because she can do products and guidance can't do products. I mean, she also said, look at the basic stakeholder pensions that will manage your investment structure for you. They're offered. This is not a recommendation. This is an instruction of who offers them. They're offered by the likes of Aviva, Standard Life and Legal and General. And then you're absolutely right. Self-invested personal pensions where you have a much. The thing about stakeholders, you'll have five or six funds. They will do it automatically for you. they'll put you in, they'll move you through the lifetime.

33:59Generally, when you're getting close to retirement, you want to minimise your risks. Because if you think about investing, everyone, with investing, the price of your investments go up and down, right? So over the long term, that's not a problem because you hope the flow is up. But the day that you take your money out and the day that you put your money in are the two days that count. Now, what you don't want to do is on the day that you're retirement, it happens to have just been a really bad six months, so everything's low. So because you've got something that's high risk and therefore volatile.

34:26So that's why you would tend to reduce your risk in the run up to retirement so that you're not going to be at the mercy of a day a day long drop of volatility at a day that you take your money out you're not going to crystallize your losses when you don't need to now within a self-invested personal pension you have a huge range of investment choices even investing in your own property for your business in a pension fund if you like if you own the business but for people who don't have that type of things just individual shares across the world or funds of property people get in touch with me and they say no i don't like pensions because i invest in and they mention shares and stocks and things they invest in.

34:56The answer is, well, get a self-invested personal pension. You could do the same thing, but you get the tax benefit of a pension wrapper. I mean, so a self-invested personal pension, they're offered by AJ Bell, Fidelity, Hargreaves Lansdowne, an interactive investor. Again, I'm being careful. This is a regulated area. I am just listing the firms that do this rather than giving you a particular choice on it. And you can go and do some reading or more so if you have a decent amount. So when I said a£50 ,000 pension fund for advice, I mean, that's sort of the scale. But obviously, if you're putting£600,£700 a month in and you're just starting off, a financial advisor will be delighted to take your business and go and get them to help you through it.

35:33Yeah, no, I totally agree. And if you're self-employed and you're looking at those types of decisions, it's obviously much more complex than a standard kind of pension for your retirement provision. So there's lots of good guidance out there. If you are looking at Sips and Sasses as a way of investing in your business, then the other piece of work that we tend to do with people who are self-employed is thinking about over the lifetime. What happens when you want to retire? How do you get that investment back? How do you hand it over? And someone could call Money Helper and you would be able to give guidance on, you know, I work in an office block.

36:05So my business is in an office block. We're renting it. It's up for sale. I'm thinking about buying it through my pension fund. Can I do that? You could go that specific. We can. We can go that specific both on our helpline, but we also deliver self-employed appointment services for people to talk through where they're at in their career, what it is they're looking at, some of those financial decisions that they need to be working through. Fascinating. Thank you. I'm going to move on to this next question because I really like it and it was one of my tips. And this comes from Mark. I'm sorted, but what's the best method for my kids to invest, say, for their retirement?

36:35I fear the state pension won't be around when they retire in 40 years' time. Thanks. I'm not sure I agree with you. I think the state pension will be around. And I certainly think one of the interesting things that tends to happen with the state pension is to change in trenches. The state pension that you get tends to be roughly stable although, you know, the new state pension was brought in for everybody retired after 2016. Changes can happen. I'm not sure we're ready to get rid of the state pension yet but I could be wrong because like in 40 years time I'll be 92 and then hey you can come back and ask me then.

37:06I don't know if I'll still be doing this. Do you know what? I hope not if I'm really honest. But look, we've already talked about where they can save for their retirement. I mean if they're employees and employee pension, if they're not employees we've just talked about all those options. But the big message I wanted to give, children can have pensions too. Almost anyone can save into a pension and get tax relief, even if they've little or no income. So the minimum allowance that you can put into a pension and still get tax relief is you can put in up to£3 ,600 a year. Now, to put in£3 ,600 a year, if you're not an employee, would cost you£2 ,880.

37:40The rest is tax relief. So you're getting£3 ,600 for the cost of just£2 ,880. And anybody can do that, or almost anybody, which means a newborn baby can get a pension. And indeed, I know grandparents who open them for their grandkids, liking the idea, it'll trigger memories of, they'll remember me in 50 years time when they retire, because I started this for them and I gave them the money. And the advantage, as we've already talked about, is the earlier you start, the more time it has to grow. So starting it when someone's just born, I mean, you're giving them the best possible opportunity. And it should be very valuable once your icker ones are oldums like me.

38:14So I know that amongst my team and me included, to be honest, my daughter has a pension already because the first thing I did when she was born is put money aside. But I would caution you always, look after your own finances first. You know the airplane, when you're on the airplane, you're travelling on the airplane and it goes, to parents travelling with young children, please put your own mask on before you put the child's mask on. That philosophy fits in finance too. Look after your own finances first. You need to keep a roof over ahead, keep them fed, keep them warm. That's more important than planning for their pension.

38:43I would also say I'd probably be putting money in children's savings accounts and a junior ISA to set them up for life as a priority over putting money in a pension. But if you're lucky enough to be able to do that as well, or maybe there's a grandparent who wants to give them something specific, then setting up a pension for your children, there's no wrong with it. Charlotte, are you of the same mind? Definitely. We love it. Why wouldn't you give that gift if you could afford to, particularly as you say, because that's a superpower? Absolutely. Now, we have one last section here, and it is the biggest question set that we get whenever we talk about pensions.

39:19Consolidation. Does that feed through to the calls that you get, by the way? Is it the most asked question you get? Currently, it is amongst the top amounts of questions that we're getting through. Whether or not people should, because obviously it's really tempting. It makes life a lot easier. You're looking at it in one place. But there are a whole load of questions and things to be thinking about if that's what you're interested in. Absolutely. And we're going to have the launch of the pension dashboard next year that should make it easier for people to see all their pensions in one place. And I haven't talked about tracing lost pensions, but it's worth going and doing a search on how you trace lost pensions.

39:51Don't pay for it. You don't need to pay for it. But because you can do that, too. And there's billions, literally billions of pounds left in pensions that people have gotten about from old employers. So let's just do the first question. Is there any benefit? It's from Bob. Is there any benefit from combining separate pensions other than the ease of monitoring them? And I'll do another one from Helen. I have several company pensions from various places I work. Should I merge them all into one? If so, how do I go about doing that? To Bob's question, there is an advantage dependent upon what the charges you're paying on your pensions.

40:23So a lot of people don't realise that they may be charging management fees on their savings as they're going into their pension scheme. So on average, people have between five and 11 pension pots. Actually, you want to be looking at what gives you the best outcome. Now, is it that one of those pension pots may just have absolutely lower charges than the others? Or is it that the charge is a step? So if you've only got a small amount, it's a bigger proportion? Or is it both? It's a bit of both and a bit of something else as well. So in that, and this is why it isn't a straightforward question, why it is more than just it's been simpler.

40:56So some may have higher charges, but you may have lots of additional benefits on it. So things around how they look after your spouse or your dependents, wider set of additional benefits. It depends upon your scheme. Boosted annuity rates. Exactly. Annuity is a payment each year for life once you transfer it later. And things like ill health cover. There are lots of, the devil is in the detail, there are lots of things to consider, not just the price. But price is one of them and that's what people need to look at. So you've got the issue of price, the issue of benefits. you've also got who are you paying in with so do you have a a workplace scheme that you're currently a member of you're working there and it's very affordable and you can get other benefits as a result so it may be much simpler to do that but to the wider question the reason why you wouldn't do it so sometimes not only are there good benefits on but you may have a small pot so if you have a couple of small pots that are maybe a small pot is a pension of under 10 000 Yes, yes.

41:55So if you've got small pots, it might be in your interest to actually leave them separate because you can potentially take the money out of that at a later point if you wanted or needed to. And that means you don't have to then go into making decisions about what you're going to do with the whole of your pension saving. And if you take your money out of a small pot, then it doesn't reduce what you can put into your pension in future. So that's the advantage of a small pot. So let me try and sum this up. Please tell me if I'm wrong. OK, so the first thing, yes. Consolidating eases the administrative burden and can mean lower fees if you choose carefully which pension you're moving them all into.

42:34Now, that could be moving them into one of your existing pensions or it could be moving them all into a new pension with lower charges that you like. For that, you might want to get advice if you've got a big enough pension pot or you could talk through it with somebody at guidance. They couldn't tell you what to do, but they could give you pros and cons so you could decide yourself. There are key things to consider, though, So I'm going to give you a checklist based on talking to Charlotte and other work. First, are there any perks in your existing pension, such as boosted annuity or other rates, which you'd be missing out on if you gave it up?

43:03Second, compare the charges and the investment choices of your old pension to the one you will consolidate them all into. It may not make an issue for you on the investment choice if you want to keep it simple, but it may well do on the charges. and lower charges mean bigger growth overall. Assuming the investment's the same, the growth is the same anyway. Number three, this is rare, but are there any exit penalties that apply to your schemes? Number four, how flexible are the options for taking retirement or death benefits on the different pensions? Number five, be careful moving out of salary schemes even if it's possible.

43:36You could be giving up unbeatable benefits. Let me give you a golden rule. Let me be even more than be careful. If you're listening to this and you listen to me, you must not take money out of a salary scheme without getting guidance first. And be very careful that if someone has cold called you or got in touch or advised you to do so, there are a lot of scammers or perhaps shysters, which I define as someone who isn't scamming you, but is actually giving you the wrong advice and doing it to make some money from themselves when it comes to taking money out of salary schemes or defined benefits if they're called.

44:05So at least go and get guidance beforehand just to double check, even if someone's advised you that, that what they're telling you isn't nonsense. That's salary schemes, not other types of schemes. even though pension transfer and consolidation, it has a lot of scams in that area. We've talked about small pots. If you're under£10 ,000, you can use the small pot rule, which will mean, because the point of this, just to explain in a bit more detail, if you take income out of your pension, then it reduces the amount you can contribute to your pension. But if you take money out of a small pot, it doesn't reduce the amount you can contribute to your pension.

44:34Obviously, all of this is once you're aged over 55. And finally, don't close a pension your current employer is contributing to. If it's not a great scheme, Instead, you may be able to regularly sweep money from that pension into the scheme that you prefer. But don't close it because they might not contribute to it anymore. If it's all gobbledygook to you, go get some guidance or some advice. Now, I need to be honest with you, listener, because I try and be honest. My original idea here was I was going to do pensions, how you save in them. And I was also going to do how you take money out of your pension.

45:03But we're already over time. And I think it's been really interesting. So what I'm going to do is I'm going to lop it off there. I'm going to change the title of this programme reintroduce my intro so it sounds like it was always planned from the start to be all about putting money into your pensions and another day in the next few weeks I'm going to do how you take money out of your pension because that's probably a whole programme in its own right too

45:28And that is it for this week If you've enjoyed it please tell your friends you've been listening to the Martin Lewis podcast If not then you can tell them you were listening to the Marvel Cinematic Universe podcast though let's be honest are they going to boost your pension? Are they going to give you extra contributions? Are they going to tell you not to opt out? Are they going to discuss whether you should consolidate or not? No. So I don't know why you'd bother listening to that. You know, let's be honest, they may wear capes, but I wouldn't listen to them for pension information.

46:09Martin Lewis is the founder of MoneySavingExpert.com. But of course, other consumer and price comparison websites are available. You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk. The offers and rates mentioned in the podcast are correct at the time of recording. However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.

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