Rewirement podcast

Angellica Bell: Hello, and welcome to Rewirement, the podcast where we help you make the right connections to create your brightest financial future, brought to you by Legal & General. I'm Angellica Bell and in this series, we are helping people from all over the country to try and answer their most pressing financial questions. So far, we've dealt with all kinds of things from - how do I get a mortgage, to can I retire at 50, to what kind of insurance should I have if I run my own business? We've paired our questions up with some very knowledgeable experts to give them some answers. And because we get to listen to those conversations as well, we've learned a whole lot along the way.

This time we are talking about something that affects women from all over the UK, and that's not having enough money for a comfortable retirement. Maybe they've been sole providers for their families and couldn't afford what felt like an extra expense when it came to saving into a pension. Maybe they've had breaks in contributions because they took time out to have children. Whatever the reason, research by Legal & General has found that the average pension pot of a woman at retirement is less than half of that of a man. You've heard of the gender pay gap.

This is the gender pension gap. We'll be finding out more about it and what's being done to help it a bit later on. But first let's talk to someone who's having to deal with it and say hello to Diane. Di, it's great to talk to you today. So I'd like to know a bit more about you and your life and what you've been through.

Diane: I came to a point in my life where I had a child as a single parent, I had no financial support other than myself, and my partner at the time decided he didn't want children.

Angellica Bell: Right.

Diane: So he left. So I was left to pick up the pieces. I had to just get through every day with a baby, trying to find childcare, keep a roof over our head. And it was very difficult. So pensions, no, not on my topic of things that I needed to do.

Angellica Bell: Yeah.

Diane: So now I find myself about seven or eight years before my retirement age thinking, have I got enough time to do anything? Because I've now found myself in a much better financial situation. So it is a bit of a daunting prospect finding yourself at the age of 57 and only just now thinking, oh my God, what am I going to do?

Angellica Bell: So let's talk about auto-enrolment. What does that mean?

Diane: My company auto-enrolled me into the company pension scheme. They’ve done this several times, but as I've said, I wasn't in a financial position to be able to really take it up. But now I am, they've enrolled me, but have I left it too late? Can I contribute more? These are things that I don't really know anything about.

Angellica Bell: Okay, well, you've got some clear questions and we have found someone we hope who can answer them for you. She's called Angie Kirkwood and she's part of MoneyHelper, the government's free financial advice service. Now we got the two of you together and I think we should listen to that conversation right now.

Angie Kirkwood: Obviously the earlier you start the better, there's no two ways about that. You absolutely get the benefit of longer term growth, but it's never too late. So anything that you can put away at the moment is definitely a good idea. You've said, should you opt in to your employer's scheme? There's a couple of things that you should think about when you're looking at auto enrolment into your employer's scheme. So auto enrolment was introduced in 2012 on the back of a number of pension investigations to say, how can we get people saving more for retirement?

If you are over a certain age, which is currently 22, but that may change in the very near future, and if you earn over a certain amount of money, then your employer must enrol you into a pension scheme. Not only must they enrol you into a pension scheme, but they must pay a contribution on your behalf, which is 3%.

So 3% of your salary, your employer must pay it. Your obligation at that point is to pay 5%. So your employer automatically takes that from your salary, but it may be worthwhile, if you have extra money, to look at what your employer offers if you pay over and above your 5%, because they may also match you % for %. So even though they pay three at the moment, if you pay six, they may pay four. So if you think about it, that is free money that is invested on your behalf. And if your whole reason for saving is for retirement planning, free money shouldn't be sniffed at. You've also got a top up over and above that in so far as the government incentivises you to save for your pensions.

So they give you an extra tax relief. So for every pound that you put into your pension, you've got your employer paying, and then you've got a top up from government. So if you look at it, there's more money being invested than you solely are investing yourself. So I would say it’s always a good idea to look at investing in your pension.

Diane: Okay. Yeah, no, that sounds good. Also I did originally join the final salary pension scheme, but that was paid up.

Angie Kirkwood: Okay.

Diane: So I do have, I think about 20 to 30,000 pounds in there. And also when I opted out the state earnings related pension scheme many years ago, and then were advised to opt back in, there's about 10,000 pounds in there. So should that stay separate or should that all go in the same pot?

Angie Kirkwood: I would say, if you're looking at that, then you may want to get financial advice. One of the things we do at MoneyHelper when we're doing retirement planning, we start and say, okay, get yourself into a position where you know two things. The first thing is, what do I have? The second thing is, what do I need? So if I've got all of these things, when I bring them together and don't forget your state pension, it's worthwhile going on and checking your state pension, and how many years qualifying do I have, or do I need to make up, to say that is exactly how much I would have from age 65, 60, whatever age you want, now bringing them together.

Maybe, maybe not. You are really getting a financial advisor to look at that because there are a lot of considerations that you have to take into account. Some of them may have benefits that are really worthwhile. You may have investments that are at a different price.

The other side of the fence is - what do I need? So again, I would sit down and say, okay, what do I spend my money on? And what am I likely to be spending on in the future? Doing a budget planner and I know that's quite daunting. Sitting, looking at an empty page and saying, okay, where do I start? If I have to pay energy, food, clothing. And what do I want to do when I retire? Is it going to cost me money? Or is it just that I have more time to do something?

So again, there are a lot of resources that would help you. There are things like retirement living standards, which you would find online, which says on average, a couple who want to live a moderate lifestyle or a single person who would like to live a comfortable lifestyle, and they define what that is, this is how much they would need. Make sure that you have all the costs you're likely to have. And it puts you, it gives you a nice, clear picture.

Diane: Yeah.

Angie Kirkwood: And if we go back to your should you put extra money into your employer's pension, you can get all kinds of calculators that would then let you see for every extra pound you put in, how much would you have at the date you want to retire? So you kind of can, at that point on your own, you can kind of see, okay, where's the shortfall.

Diane: Right? Okay. Yeah.

Angie Kirkwood: Or you may surprise yourself and not have as much shortfall as you think you do.

Diane: Yeah, well, now I've checked up on my state pension, I qualified for the entire lot.

Angie Kirkwood: Good.

Diane: I've paid in, I think, for 41 years.

Angie Kirkwood: Good.

Diane: So that's a big relief. I don't personally have anything left on my part of the mortgage. So I paid mine cash. So everything now is money for me to live on and to pay towards bills. So that's really comforting to know that.

Angie Kirkwood: Yeah. So I would say that putting money in a pension, even over a short amount of time, we have to remember the benefits of employer contributions, tax relief, that actually increases the amount you have invested. Now, where you are going to invest that you want the best chance of growth, but you possibly haven't got enough time to take a lot of risk that you would if you were younger, but there are options.

So one of the really important things, again, that a financial advisor would do was assess how much risk you could afford to bear and match up investments that suit you, that have a profile that allows you to potentially have growth because eight years is not short term, it's medium term, but at a risk that you can take, you probably do not want to see it bubbling up and down and up and down in the way that you could afford to possibly when you were younger. So you really want somebody to look at what your risk appetite is and match investments to that.

Diane: I don't think my risk appetite is very high. Given the short amount of time that I've got left to do some serious planning for my retirement. I never thought I would ever be in this situation, but I raised a child on my own and I didn't have any financial help. So that's why I've come to this as late as I have. And I expect there's going to be a lot of other women in my situation.

Angie Kirkwood: That is one of the issues, the parental penalty that women do face. We haven't acknowledged pensions gender gap, and there are lots of initiatives underway to see how we can stop that. And there are a lot of women who get to this age and are in the same position that I think people get put off. I know that a lot of my friends look at things pensions and say, that's pensions. I can't do it. You don't need to be an expert. It's just taking a little bit of time and knowing where to go for a bit of guidance and thinking, well, I don't need to learn everything about pensions, I just need to know about me.

Diane: Yeah.

Angie Kirkwood: And my circumstances and where I can go and maybe get hints, tips, small things that I can do.

Diane: Yeah. So perhaps when our company were inviting the pension people in, they could have maybe tailored it, the language a bit more to make it less scary.

Angie Kirkwood: I know, that has been an issue that we've recognised in the industry is that we tend to use language that is not immediately accessible to the average person. I think most pension providers are acutely aware of that nowadays and have really put a lot of time and effort into simplifying everything down, number one, and to look at, for example, workforces and saying, well, a workforce is made up of a lot of different people of a lot of different age groups, sexes, people with different priorities, and are trying to be a bit more personal in the way they speak to people and the times they speak to people and give people the option to engage in the way that they want.

Diane: The MoneyHelper thing. If I'd had known about that, I'm not sure I know what that is. Can you tell me a bit more about it please?

Angie Kirkwood: So MoneyHelper was set up by government. So we are a kind of arm’s length body and as an organisation, our whole existence, and our reason for being, is to offer people free and impartial guidance on all money matters. So that is debt, credit, mortgages, saving, investments, and pensions. So we have a website that has tools and calculators. So when I was saying you need to look at your budget. So we have budgeting tools. We have pension tools, a lot of support for mortgages, credit. We have all the information online, but also what we have is you can phone the money guidance or the pensions guidance service.

So that's with any specific question you have. Now, what they'll not give you is absolute advice, but what they will do is tell you the options that you have, the implications that you should be considering when you're thinking of making a decision, we will also point you anywhere we think that you could get extra help with any information you might need. We also offer one more thing, which is relevant for you, Diane. For every person over 50 who has a pension investment, we offer an appointment, which is a session with a guider because when you come to retirement and taking your money out of your pension, you have a lot of options. So Pension Wise is an appointment for over fifties.

I would say it's actually more relevant when you are starting to think about taking your money out, it will look at all the options you have, the tax implications of how you remove your money from a pension. If you are on benefits, what the benefits implications may be. It will look at your circumstances, whether you're single or in a couple, whether you're ill at that point or not, because basically your pension provider will send you a statement saying, it's time to take your benefits. Here are all your options, and that can become overwhelming. So this is a guidance session, which talks you through all of these options, what your implications are, and where to go for more help.

Diane: I was certainly not aware that I was able to get any kind of one-to-one guidance with a money counsellor. If I'd had known about that way back or something similar, I might have accessed that resource.

Angie Kirkwood: And I think that's why we were set up because there was a broad acknowledgement that people need help with this stuff.

Diane: Yeah, because just you saying that you're going to have a lot of options. It's like, what? All I'm doing is stopping work. I shouldn't need a degree to be able to access any money that I've put aside.

Angie Kirkwood: Yeah. And again, it's about you not having to learn the whole pensions landscape. You being able to go to someone and saying, this is me and my landscape, what will suit me?

Diane: Gosh, I'd like to start thinking about retiring. Now I've got another seven years left to the official government retirement age. Seven years, can I carry on working at the level that I am going through the menopause it's ugh. So it would be nice to say that I could do it in less time, but if I've got to go another seven years, then I think I'll just about hang on. And after that, I don't know what I'm going to do. No idea, because all I've ever known is working. We've got a camper van so it would be nice to be able to get out in the camper van and go off whenever we like, I like traveling. I like food. So I like going places and trying different food. So I'm going to be a fat retiree.

Angie Kirkwood: I'm a recent convert to the camper van lifestyle. I can't wait either.

Angellica Bell: Well maybe one day you'll meet up in your respective camper vans. Sounds like fun, Di.

Diane: Yeah. I'm looking forward to it, but I just hope to have that extra money to be able to do it, and I'm sure I will.

Angellica Bell: Well, that's the plan, but what were the main things you took away from the session with Angie?

Diane: It's never too late to put some money aside. That's the main thing. It's given me the confidence to know that because I was in a bit of a panic I have to say, but now my mind's at rest that I can do something.

Angellica Bell: Oh, that's brilliant. Well, thank you so much for sharing your story with us. I'm glad it was useful. Good luck for work. And when it arrives. Good luck for retirement.

Diane: Thank you very much. Looking forward to it.

Angellica Bell: As we've said, Di is very, definitely not alone when it comes to having to make choices about funding a pension or looking after a family. The gender pension gap is increasingly being recognised by government and by the financial services industry as an issue that needs addressing. To tell us more about the issue and the kind of things you can do to help build up your pension savings, I'm joined now by Kath Photiou, Commercial Director of Workplace Savings at Legal & General. Kath, welcome to Rewirement.

Kath Photiou: Hello, Angellica. Great to be here.

Angellica Bell: Kath, you've been looking at this in quite some detail and I can't believe the big difference between men and women with money at that stage of life.

Kath Photiou: Yeah, absolutely. I'd agree. The biggest problem is that the gender pensions gap is just really a symptom of the gender pay gap between men and women. So we know that they're intrinsically linked because women earn less and are less likely to be in senior leadership positions. And we've done some research on this across our membership base of four and a half million members. So what we found is that the average pension pot of a woman at retirement is 12,000 pounds and that's less than half of a man at retirement at that same age at 26,000 pounds. So the gap is over 50% difference as women retire.

Angellica Bell: So obviously with women, we know that there might be a career break in their life. Maybe they've had a baby and they stopped putting into that pension pot. So what could they do to carry on building their pension savings? If women need to do that?

Kath Photiou: Well, there's a few things they could probably do. The first is they need to think about their National Insurance Record for state pension provision. The state pension will always be a backbone for most people's retirement income. So if you are having a career break, you should check online at gov.uk and see your National Insurance Record. You need 35 years to qualify for a full state pension. But what you tend to find is that most people who have taken maternity breaks don't have that full qualification.

Angellica Bell: Okay. So if you do reach retirement and you don't have enough money to live on, what options are there?

Kath Photiou: Well, there's a few options for you. I mean the first that we heard from Angie at MoneyHelper is to use the government's free and impartial MoneyHelper services. They're really, really good. So if you've got general money concerns, you can go to that website. If you are over 50, then you should think about using their Pension Wise service, because that specifically talks about pensions, including the state provision.

The other thing that you could do is check whether you are eligible for additional benefits from the state and there's one particular benefit that's really underutilised and that's called pensions credit. So pensions credit's there to top up your weekly income. And it can also entitle you to other benefits like cancel tax or free TV licenses. And then the other thing I'd probably suggest, Angellica, is look at your home, because for most people, their home is their biggest asset.

So what you could consider doing is downsizing to release money so that you could fund your retirement from the money that you release from your home. Or if you don't really want to leave your family home, you could take out what's called a later life mortgage and that's for homeowners age 55 or above. And that allows you to borrow money based on the value of your home while you are still living in it.

Angellica Bell: Really good points there, Kath, do you have any other tips to help people build their own pension pots?

Kath Photiou: Absolutely. I mean, what I'm about to say, Angellica, isn't personal financial advice. So if anyone is thinking about something for their own circumstances, they should contact a financial advisor. But my top tips really are things like you should plan for a future full of Saturdays. Everyone underestimates how much they'll need in retirement. And we heard from Angie that there's help you can get from MoneyHelper to find out what that comfortable or moderate retirement might look like.

Other tips that I've used over the course of my career is put more into your pension whenever you get a pay rise or a bonus. So don't just live to your means. But instead take that surplus income and put it in your pension. Always maximize, if you can, your employer contribution. So often you'll be in a employer pension scheme where your employer will match your contribution amount. So make sure you are taking advantage of that. Couple of other tips, as I've already told you, check how much your state pension will be and whether it's enough for you to support your ideal lifestyle, and then keep a real regular eye on your pension to make sure you are in full control of it and saving for your ideal future.

Angellica Bell: Kath, the world of pensions can be quite complex, but Legal & General, as a pensions provider, are trying to make that simpler aren't they?

Kath Photiou: Absolutely, many people struggle to understand pensions. It's particularly acute for women as they really identify as having lower confidence when dealing with money, both savings and investing. So at Legal & General we're doing a number of things to ensure that our communications have clear objectives, cut out jargon, call out next best actions, and really ensure that the tone of voice we use is clear and fair and warm, but this will be a continuous test for us. Customers will have to continually give us feedback and we'll improve our communications to make it easier to understand.

Angellica Bell: Kath, thank you so much for joining me.

Kath Photiou: Delighted to be here, Angellica.

Angellica Bell: And a big thank you as well to Diane for talking to us today. Don't forget that wherever you are in life, you can find lots more resources and information on Legal & General's website. Just go to legalandgeneral.com.

We have two free courses that we've developed with The Open University which covers savings and investments. You'll find the links in the show notes. Plus if you'd like to find out more about the free guidance available at MoneyHelper, then just go to moneyhelper.org.uk.

I'm Angellica Bell, and join me next time for the last in the current series of Rewirement. And we'll be doing something a little bit different. When it comes to financial issues, there's one we are all facing. The cost of living crisis. How do we manage our finances when prices, interest rates, and inflation are all going up? I'll be joined by three of the brilliant financial experts from this series to try and answer some key questions about it. Follow this podcast on your favourite platform so you don't miss an episode and I'll catch you next time.