Dear Brits, please save more

0:00This episode is brought to you by BigData.com. Your AI is only as smart as its data. BigData.com connects Claude, ChatGPT, and Copilot to the sources hedge funds and asset managers use. SEC filings, financial times, earnings calls, and over 2.5 million transcripts from 50-plus countries. Verified, institutional-grade intelligence right where you work. Try it free. Pay-as-you-go plans start today at BigData.com. If you're listening to this here podcast, then you're probably either a finance whiz or a finance wannabe. At the very least, your market's curious. Welcome to the tribe. But in the UK, at least, an alarming number of people have a seriously weak grip on their money.

0:45And in particular, a lot of people have no pension at all. Just none. As a card-carrying finance person, this makes my toes feel funny. It's a potential cliff edge for people and you do have to wonder what it all means for the future of our economy. So today on the show, scary stats, pension pots and what to do about it. This is Unhedged, the markets and finance podcast from the Financial Times. I'm Katie Martin, a markets columnist locked in the basement of FT Towers. And today, unusually, I'm joined in the studio by not one but two pensions pointy heads. My very lovely colleague, Claire Barrett.

1:25Claire, say hello. Hello. I'm not as pointy as you think. You're pointy enough. But also Gavin Lewis from BlackRock. Thank you for having me. How dare you call me pointy? Look, it's a pointy head is a term of praise. So, look, this podcast doesn't normally talk about personal finance, but it's a big financial issue for individuals. It's a big financial issue for the country. And in the UK, we have this thing now called auto enrolment. So you work for a company and unless you say otherwise, a little bit of money is taken out of your pay before tax and popped into a pension. Fine. So a lot of people think that nationally pensions are just sort of sorted.

2:08I mean, Claire, on a scale of one to 10, how wrong is that idea of sortedness? Well, I mean, I would say five, because auto enrolment seriously is the best thing that has happened to pensions, you know, in the last 15 years. At least it's getting people starting to stave into a pension from the get go. I mean, when I started my first job as a journalist, I would have had to have opted in to the workplace pension scheme. And for various reasons, including the fact that I didn't think I'd be there for more than two years, I just said no. And I worked out a while ago that had I said yes, and that money was invested in a S &P 500 tracker fund, it would probably be worth about£70 ,000 by now, which I could really have done with.

2:53Because as a woman, my pensions chances are less than a man, statistically speaking. So women need a lot more help. Also, enrolment has shoved younger people into pension saving sooner. It's still missed out a lot of women who don't earn enough or work part time or who are self-employed. That's a very big black spot in this country for pensions. But we all need to be doing more with what we've got, understanding it, trying to save a bit more. And for those who are earning more, it can be really valuable in terms of tax breaks. And I write a lot about that in my FT column. Yeah. So, Gavin, you and I met at like a wine and nibbles thing.

3:30And I was like, oh, a pension's pointy head. you know like a lot of people are just sort of staring into the abyss right and I remember us having a chat about for a lot of people how bad is this and your answer was yeah no it's pretty bad look that's right so look I mean I think we have to separate two issues so previously before alternate enrollment we had a participation problem right basically said that there weren't enough people actually participating or contributing to a pension and I think alternate enrollment has been a great success so i know when did that come in 2012 right 2012 so look okay i'm a pointy head fair enough i want to correct it clear on a statistic so like you know it was a test it was a test i failed it so um and it's been a great success because before that pre-auto enrollment the statistics was something like four out of ten people were participating in a private sector workplace pension yeah it's now nine out of ten right so that needs to be seen as a success.

4:32The challenge now, I think, is slightly different. It's an adequacy problem, which is essentially what you're experiencing, Claire. And I'm the same. I mean, I'm Gen X, and you can take your jaw off the floor. I know. I believe I am. I know. I know. That's really hard to believe. Listener, he looks about 25. And similar to you. So I started working, and I had to opt into a stakeholder pension. And you're like, no, I need my beer money. I need my rent money. I haven't got... Exactly. Or I wanted to buy a house. So I needed a deposit. So auto enrolment, absolutely no two ways about it. It's a fantastic thing.

5:08But there was a report out from the Pensions Commission in May this year. These are the scary stats that I told you were going to come. So the Pensions Commission, which is mandated by the UK government, said 45 % of working age adults in the UK, so that's about 18 million people, are not saving into a pension at all. only 4 % of fully self-employed people are saving for retirement even lower for younger people 15 million people are under savings that's that adequacy point that you were talking about Gavin and tragically from our point of view this affects particularly heavily Gen X the finest generation low and middle income earners and women are the most exposed to this problem and the report goes on and on and you just read it and you think oh my lord so set the scene right if you have saved nothing what is going to happen when you retire what are you going to live on so look if you've saved nothing in a either auto enrolled or opt-in pension system but you have been contributing via national insurance you will have a state pension um so that's a good thing so a pension system actually is robust in the sense that it enables people to ensure they're not living in poverty when they retire.

6:30Although£12 ,000 a year, it's not going to buy you very much. It's not. And this is the problem. So I think a lot of people think, well, actually, it's fine because I've got the state pension and it isn't nearly, nearly enough. You might stave off poverty for some period of time, but pensions don't exist in a vacuum, right? So inflation, cost of living, How people function without contributing to an extra pension above the state pension is a real, real, real issue. Yeah, it really is. Yeah. So I think, you know, everyone knows someone who's in this situation, right? Whether they're a member of your family or whether they're friends or neighbours or whatever.

7:06And they're just like, it's fine. Like my house is my pension or it's fine. At some point I will inherit something. Claire, does that make you feel a little bit sick? It makes me feel a little bit sick. Well, it would make me worry for them because there's always something that you can do. If they were totally fingers in the ears and la, la, la, then yes, I would have worse. But I think pensions nowadays, part of the reason it's so complicated is because people hear the word pension and they think, oh, it's hard. It's hard to understand. And it feels like too big a problem to solve. And if you're in your 40s or 50s, you might think, well, I've left it too late.

7:40I'm never going to have anything. But actually, if you start saving in your 50s and your employer bung some money in if they've got a good scheme and you get the tax relief, then, you know, you could build up. It's better than nothing to start something now. But most people, I think, are going to take a bit of a buffet approach to how they fund their retirement. So, yeah, there might be some inheritance. There might be housing equity. But the obvious one is that you work for longer. But then it's not a given that you'll be able to get a job doing what you want to do at the salary level that you need.

8:10Gavin how is this a UK thing you know are we uniquely bad at this as a country well look I think the UK pension system there are a lot of benefits to it and we talked about the state pension like the majority of countries around the world we've closed our private sector DB pensions and so these are the old old school defined defined benefit yes thank you for picking me up on the acronym old defined benefit pension schemes which almost gave you a guarantee of an income when you retire we've now moved to this defined contribution pension scheme with the old defined benefit system like the company your employer was on the hook with defined contribution system the individual was on the hook so there isn't really any any safety net and your money could run out it could and it's also subject to of the things we talked about for example inflation or whatever you're invested in actually reducing at the point where you retire so these are real risks.

9:04And look, some other countries are further ahead. And the UK is often compared to Australia. So their defined contribution pension system is probably, I would say, maybe 10 years advanced from where we are. So you could almost look at the Australia model and predict where the UK is going to go. For example, in auto-enrolment, we contribute on average 8%. In Australia, that's much higher. It's around 12%. In the report that you mentioned, the Pensions Commission report, one suggestion was to actually contribute more so moving from eight percent to twelve percent the other interesting stats we kind of talk about demographics and age groups you were only eligible for the uk auto enrollment pension when you're 22 years old there's a suggestion that that moves to 18 because then you get obviously three years extra pension contributions but the other thing is what this misses is people who are not necessarily in full-time employment so there There are major gaps, like women's, there's a gender pensions gap.

10:01As a black person, there is an ethnicity pensions gap. We also have people that work in the gig economy, part-time workers. Hatchwork workers who have three different part-time jobs and don't get a pension with any of them. Absolutely. So a lot of the gaps that you quoted in the pensions commission, that's where it resides. But also, interestingly, middle-income earners are caught in this trap of actually earning a decent amount of money but having to compete with other forces, like housing, childcare, elderly care. So it isn't a given that actually just because you are earning slightly more that actually you're going to be better off.

10:37It's about the contribution and the replacement rate, which is essentially what level do I need to clear to live comfortably? So what's the best thing to do? So I know people who are putting money into an account for a pension for their toddlers. Yeah, that's very popular. That's great. I mean, it never would have occurred to me, but this is good parenting. This is superior parenting to my parenting. So long as you're not prioritising your child's pension over your own, you've got to care for yourself enough to put this money to one side for future you. But people get intimidated and scared by pensions, whereas what they need to do is understand the effect.

11:20If they do give up some of that hard-earned cash, they've got the benefit of tax relief which so few people understand so understanding the system more understanding how you can get those top-ups finding out if your employer will pay in more for you if you pay in more and certainly with bigger employers with better financed employers dare i say the chances are that they will do that ask your partner to ask her employer too because you could fund a top-up for her there's free money on the table that she could get so there's lots of things that people could do, especially if couples work together.

11:53But you've got to be proactive. Nobody's going to come along and hand this to you. That's the thing. No one's going to do it for you. But so, you know, again, I'm going to assume that a lot of people who listen to this podcast have got this at least partially sorted. They've got their auto enrolment. They think about money on some level. Otherwise, they wouldn't be listening to podcasts from the FT. But I guess what's the best thing for them to do? is it just to pay in as much as you can as early as you can as consistently as you can and also is there a role for you know the humble unhedged listener just to have a tap on the shoulder to their brother or sister and say you have got a pension though haven't you like a sort of nudge that you can give to people around you just to sort of say this is a thing that maybe you should look into isn't it so is that the rule Gavin for you just like as much as you can as early as you can and just encourage people to have a look and think about it that's definitely part of the equation so there are so many levers that one can pull to get a better outcome the amount that you put in is a lever doing it early is absolutely lever because you get what's called the compounding effect because that one pound returns into two pounds suddenly you've got two pound invested which then increases year on year one hopes and i think culturally we don't talk about money in the uk which is one of the reasons why we all sat here so if you want to talk about comparisons in the US, you know, you held down your yellow cab, you tell them that you work in financial services, and then they start banging on about their 401k.

13:21Give me some stocks. Yeah, their 401k and I've got this stock and I've got that stock. Like, culturally, we don't do that. And I think that is a real problem. So the more that obviously the unhedged listeners can co-opt others into talking about this savings, like, culture I think is excellent. But I also think, like, we as industry, we need to help as well. Certainly how much you contribute is a factor, but also what it returns, so what it actually earns. What is it invested in? You know, an extra few percent in the investment return can equate to multiples in the size of a pensions park. Yeah.

13:55It's odd, isn't it, that, you know, London is home to a world class financial services industry, one of the biggest finance hubs in the world. But the average Brit doesn't know a cash account from an equity index. Well, a lot of people, and there's surveys to back this up, think that their pension is just like a cash savings account. They don't even realise that it's invested. They don't realise that they actually have choice in where it's invested. And then you've got the multiple pot problem, because for every job, you get another pension. So you've got people with different little pots of money sitting around and they could be invested in very plain vanilla default funds.

14:32But if you're in your 20s or your 30s, this is not investment advice, but probably a good idea to have it in equities, high risk you can afford to take equity risk in the stock market rather than have it in bonds and cash and something that's just a one-size-fits-all which is what your money will be dumped into otherwise because you're going to be alive for a long time and you probably won't need to access that money for like 30 or 40 years so that will give you the best chance of growing and beating inflation but if you don't know that it's an investment or you can't track it down Gretel is a free website that you can go on in the UK as in Hansel and Gretel you can use it to to track down pensions.

15:11I helped a friend of mine to use it to track down a pension that she didn't know she had. She's 61. And she found one that had£16 ,000 in it. So this is something that you can do. But what's at stake for the UK economy if we don't sort this out? Because the country, like all of us, is getting older. So the share of the UK population that's over 65 today is 19%, 1-9. by 2075 it'll be 28 percent we're an aging population we're staring down a barrel of a large part of that population having a pretty tiny income unless they take some sort of remedial action kind of now or yesterday ideally gavin give me a message of hope like how does this work out well for the UK.

16:02Yeah, I mean, it's strange because it's only in pensions that longevity is a problem. The bad news is we're talking about pensions. So that's a bad thing, because it basically means that that pension provision needs to just last the entirety of one's lifetime. And look, I think it is a potential significant problem, because if people fall out of the system will require care then the state needs to pick that up yep and that means that the working population is going to be supporting a retiree base that is only increasing so we're going to need the robots to work really hard it's a real problem but then the other thing is that if that's the case and we therefore need to almost reimagine what one's working life is and reimagine retirement a because people do need to save more and contribute more but also probably continue working and probably continue earning for longer than they would have anticipated now that could be seen as a bad thing because it means that people are going to have to stay employed longer and people do need to be employed but also means that you can actually think slightly differently about your career and in terms of uk productivity one of the best attributes that we do have is our population and we're just not making use of enough of them yeah one thing that i remember for like grandparents retiring when they were like, I don't know, certainly 60.

17:26They had a house that they owned outright that they bought back in the day for Tuppence Apney. And the state pension was perfectly adequate. It wasn't like they were loaded, but they were like fine. And they got loads of free stuff. And they gave me sweets and jelly and toys. And I guess on some level, we all think we're going to be like our own grandparents. And it's like, guys, this is just like not a thing. That whole thing is done. it's over you've got to sort of shape up and look after yourself so Claire top tip what's your top tip find your pensions track them down put them all in one place if you want to but just sort of be aware of what you've got and start thinking about retirement which I say in scare quotes because it's going to be very different for us a long way out like 45 yes this is something you to be thinking of, even things like going through your budget and being hyper aware of what you're spending.

18:22My husband wants to retire at the moment. He's a bit older than me, but I want to have spreadsheet data to show, well, OK, if you retire and you've got pension income. What happens if you're married to someone from the FT? We can afford it. You know, you're not going to overspend. But unless you've got like this laser focus on your outgoings, you're not going to know what the number is that you need to hit for retirement and if you can sort of put some numbers around things maybe they've become slightly more achievable and slightly less hopeless yeah gavin top tip honestly i think a lot of people kind of stick their head in the sand because it's too difficult subject to don't do that and i think at the back of their minds they kind of know that oh this is a problem but i'll just think about i think you have to grasp the nettle i think you have to engage with it and really get to grips with, at least understand where you are.

19:14And then one can start making some decisions. Unhedged listeners, your mission is to spread the word. In the meantime, we're going to be back in just one sec with Long Short.

19:28A quick word from BigData.com. Your AI tools are only as good as the data behind them. bigdata.com plugs into clod chat gpt and copilot via mcp bringing in the sources serious investors trust sec filings financial times earnings calls and 2.5 million plus transcripts across 50 plus countries institutional grade data right inside the tools you use every day start your free trial at bigdata.com okie doke it is time for long short that part of the show where we go long a thing we love or short a thing we hate. Gavin, what are you saying? Okay, I really am a pointy head. So I'm going to go long longevity because I think in the pension space, it's seen as such a problem.

20:19But I actually think it's an opportunity. If one can make sure their health is in order, I think it's an opportunity to extract more from our population. I think it's an opportunity for individuals to work and contribute or over a much longer cycle to society. I really think it helps stave off this potential problem that we have around care and the impact on UK productivity. Do we all need to be like those weirdo American billionaires who try and make themselves incrementally younger over time and live forever? No, I just think you can do that by just being more productive. The longer you stay engaged, the longer you work, the more meaning one's life has.

20:59Your social circles change and stay intact. I think that's a good thing. I reckon behind the scenes, Gavin is like trucking all of those tablets that keep you young forever. I know. Again, Gen X, hard to believe. So hard to believe. Thank you. Claire, what are you saying? What are you long? What are you short? I am going short on the new Prime Minister's social media feed. I'm talking about Andy Burnham. I thought you liked his social media feed. Well, I did at first because I thought, finally, we have a politician who can connect with voters emotionally and who understands the importance of social media as an educational tool because it's massive with personal finance, learning about your pensions, etc.

21:40If you want to follow me on Instagram, I'm at Claire B, by the way. He's a pro. He has just... I just feel like we've reached a tipping point this week. The amount of stuff that he's got on his social media about how he loves pork scratchings, what his favourite order is in Gregg's, him playing the guitar, showing us around his office in a record that Joling Ma from the Smiths gave him. It's kind of starting to grate a bit because there's nothing on there. There's no content, for example, about the bond market. No. And there's nothing about cutting government spending. And frankly, you know, I don't care if the man shops in Gales or Greggs.

22:18I want to hear something about what he's doing to bring down government spending, bring down the welfare bill. What a turnaround from Clare Barrett. I swear you were a fan of his social media. like a few days ago. Well, I'll be liking it less from now on. Fair enough. Fair enough. Get real. I am not necessarily long gold, but I am long all of the sudden excitement about gold. Like people are talking about it as a fix for all of the unorthodox policy that's coming out of the US. But also the Netherlands has brought a load of its gold. Did you see this story? It's brought like 86 tons of the stuff back from North America over to London because of geopolitical risks and uncertainty.

23:01And you think, what do the Dutch know? And where can I buy more of this stuff? So everyone is excited about gold, and so I am excited for them. So, yeah, it's been a wild foray into the pensions world, into personal finance, but unhedged. Gavin, Claire, thank you for being such good sports and chatting this all through with us. listeners we will be back in your ears on tuesday in the meantime spread the word and then listen up