Demystifying pensions

01 Sep 2022

“A pension? No, that’s just something old people have. I haven’t got one of them”.

I wouldn’t be surprised if this was the reaction we’d get if we were to ask the majority of younger people whether they have a pension. There are tens of thousands of people who don’t know they’ve been auto-enrolled into a pension scheme. Most won’t have read the documentation that was sent to them – it was too long and full of jargon. Many will also think that the money that comes off their payslip every month and says “pension contribution” is money that’s “lost” to them. This is why Pensions Awareness Week is such an important initiative which we at Hymans Robertson are delighted to support.

With the cost-of-living crisis weighing heavily on many, and the anticipated October price cap change likely to see fuel bills spike even higher, there’s already evidence emerging of people cancelling some perceived “non-essential” direct debits. Worryingly, for some, this includes spending on house and car insurance. Pension contributions could be next although the evidence to date on this is mixed. But these members may not only miss out on the “free money” from the company contribution but could also lose out on other valuable benefits such as life insurance. This is why it’s important for us to provide clear and simple messaging on other options that these members have, such as opting down in terms of their contributions rather than opting out of their pension scheme.

Going back to the point I made earlier, many people believe the money they pay in pension contributions is lost. I believe there’s a strong case to include an explanatory note with a person’s first pay slip which explains all the deductions and what they’re for. “You pay income tax and that goes to fund XX”. You pay national insurance and this goes to fund XXX. And this is your pension contribution – this continues to be your money, along with money that the company pays, and will be invested for you to make sure you can afford to live when you’re older”.  

Pensions Awareness Week gives us the opportunity to come together as an industry to demystify pensions and help people understand the importance of pension savings to their financial futures. And there’s things we can all do in our daily lives, outside our day jobs, which can help too. Here are just a few suggestions:

  • If they’re old enough to have a job, have you spoken to your kids about the importance of saving into a pension? I know that the minute my daughter started her placement year at university, I encouraged her to join the pension fund. Her latest statement shows she now has around £1600 saved into her pension. And she didn’t really notice the money she was paying in.  
  • Have you got any friends who are self-employed? It’s possible (likely even?) that they have not even thought about saving into a pension. Tell them the benefits of doing so and they may well thank you at a later stage.
  • Do you have friends who have two part time jobs? It’s possible that neither of the jobs individually will pay enough to put them above the earnings threshold for auto-enrolment so they will be missing out on pension savings (and importantly employer contributions) from both employers. Remind them that they can opt in to get their “free money” from both companies
  • Many of us will have friends or parents who are close to their retirement age. Encourage them to start thinking about what they want to do when they retire, and start researching the options now, so they have plenty of time to weight up their options.
  • Contact NextGen and get involved with their initiative to present on pensions to university students.

In the words of Tesco, every little helps. If we can all do our bit individually, as well as supporting Pension Awareness Week, we can help influence how comfortable a wide range of people are when they come to stop working.

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