Quite a few of our mates have reached middle age having successfully avoided ever having had a serious conversation about a pension.
I mean: why would you? It’s much more interesting discussing what you’re going to be doing on the weekend. Or music. Or politics. Or that boxset you’ve been binging on Netflix. Pretty much anything other than pensions.
If you’re in your twenties, retiring seems too far away. You want to spend your money on going out and having fun. Or going travelling.
Heading towards your thirties you might tone that down a bit because you’re fed up of renting and you’re going to try and climb the mountain of saving up enough for a mortgage. Result: no spare cash for the pension.
Then maybe there’s marriage or babies to pay for. Then childcare. Then maybe a car. Then a holiday. We get it: the demands on your money are endless.
But WAIT JUST A MINUTE. There’s some very good reasons why you should squirrel away whatever you can afford into your pension. Let’s start with the free money.
If you want your mates to have some funds to do stuff with you when you’re older, you’re going to have to have the conversation about pensions. Here’s how to do it.
Yep, it’s true. If you’re enrolled in a workplace pension your employer will be paying money into your pension savings.
Typically this is them putting in the equivalent of 3% of your earnings, with you contributing 5%. But: that 3% the company puts in is on top of whatever they are paying you. It is free money.
Even better, an increasing number of companies are offering to match your pension contributions (usually up to a ceiling). That means the more you put in, the more money you get from them. Now time for some icing on your cake: by contributing into your pension you get even more free money and this time it’s from the government.
This free money is Tax Relief. Whatever you contribute into your pension is topped up by 25% from the government. As the state pension is going to be incredibly challenging to live on (it’s currently £10,600 per year), this is their incentive to get you to save up additional funds to supplement it.
This means if you put £100 into a pension, the government adds £25. If you put in £1000, they add £250. That’s right: £250!
More good news: you don’t even have to do anything to get this money. Payroll sorts all that out for you. Do you think this is making for an engaging conversation with your friend? OK then. Time for you to pull out your ace.
The money that goes into your pension is mostly invested in stock markets, which fluctuate month to month but over the last 30 years have grown at an average rate of 7% per year. This is the jargony sounding ‘compound growth’.
As an example, if you put in £100 when you were 25 back in 1998 and topped it up with £100 every month it would be worth £101,975 by now (assuming that 7% growth we mention above).
You would have put in £30,100 during that time, so you’d be more than £70K up on your investment. The rest would have come from Tax Relief and compound growth. See what we mean about free money?
There’s no knowing what markets will do going forward or, to put it another way, past performance is no indication of what might happen in the future. Your investments can go down as well as up.
Are they still with you? Good stuff. It’s time to square up to the big fat elephant in the room.
Yes they are. Or up until now, they pretty much have been. We can’t really give you a reason why. Maybe it’s because marketing people know that younger people don’t want to think about getting old or won’t have the spare cash (which is where we came in – see above).
Maybe it’s because pensions are associated with jargon that not many people are interested enough to decipher. We get it: 'annuity' is a strange word (jargon free explanation of that in our pension glossary).
But then there are pension companies like us. When we’re all in the same room we look at each other and think “well you’re not boring or difficult. You’re pretty nice. And we like some of the same things that you’re into. And when we talk I mostly understand what you’re on about.” So here at Penfold we try to talk to our customers in the same way.
We will come out as being very excited about saving though. Not just because of the free money on offer but also because of the way technology can make everything easier. Still enjoying the conversation? OK, you’re in the home straight. Let’s bring it home.
Honestly, our app is pretty slick. You know that annual statement letter that you get from other pension providers that lets you know how much you’ve got in your pot and how much it has grown by that always feels disappointing and you file or shred? We don’t do that.
First off: the app sits on your phone so you don’t have to look through any files for the information. It tells you how much you have and how much it has grown by anytime it crosses your mind. But: how much will you need? Good question.
The app also gives you a forecast of what kind of retirement income to expect based on your age and contributions. It takes into account inflation and includes the state pension.
But it also places you in a lifestyle category that can tell you how much you’ll have for common costs like the weekly shop or holidays. The app is really cool but we didn’t just create it because people kept saying pensions were boring. Our customers tell us it’s incredibly useful too.
If you still want to be knocking around with your mates doing fun stuff when you’re older, you’ll need some money for whatever that is, so have the conversation with them about pensions now. With the cost of living, we know it’s tough, but whatever you can afford is worth it for the reasons outlined above.
Finally, something of a reward for those of you who have made it this far through this blog: more free money. If you’re already a Penfold pension holder, you can refer a friend and both of you will get £25 for your pension. Head to the Profile section of your app and then choose ‘Refer a friend’. And with that, you’re all done. You can go back to talking about the stuff you’d rather chat about now!