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

A special podcast all about starting and saving in a pension, including the two pension superpowers that instantly double your investment. Martin is joined by Charlotte Jackson from Money Helper, the free and impartial service giving help with money and pensions. They explain how pensions actually work, and whether you should stay opted to your work place pension. Should you consolidate your pensions? How to start your first pension? Should you start a pension for your child? How to get totally impartial free guidance. Stakeholder pensions versus nest versus SIPPs? How much to save in your pension? If you want to hear more on pensions, then check out our special ‘Not The Martin Lewis Podcast’ episodes from July 2024 on this feed.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 0:42Martin Lewis?

  Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's all going to be about. Now, usually much of it comes from my BBC Radio Five live show with Adrian Charles, but no, not this week, no. This is a pod-only pension-saving special, just for you lucky, lucky podcast listeners. In today's pod, the two pension superpowers that mean you can more than double your investment instantly. Whether you should stay opted into your workplace pension or not, spoiler alert, yes, you should. Should you consolidate your pensions, the pros and cons? How to save in a pension if you're self-employed?

• 1:25Martin Lewis?

  How to avoid leaving your pension to your ex? It's a much easier mistake to make than you think? And children's pensions, yes, they exist and some people have them. Play the theme tune.

• 1:56Martin Lewis?

  Hello and welcome. Now, as my hair gradually grays at the edges, I find more of my... What's that I hear? No, I'm really graying, I know. I find more of my social group ask me pension questions. Now, in a way, it's a worry because I'm in my 50s and you shouldn't be asking about pensions in your 50s. You should be doing it the day you start working or even earlier. Children can have pensions. I'm going to be mentioning that later on. So, today, I want to talk to you about how you save for a pension, what a workplace pension is, and for those people who say, "Oh, just live for the now", it is worth remembering, typically, we only work for 45-ish of our 85 years that we tend to live. So, that's 45 years has to pay for 40. Now, you may be saying, "Well, it doesn't really because when I'm a kid, I don't have

• 2:40Martin Lewis?

  to pay for myself". No, but most people have to pay for their children, so there's an effective cross-subsidy. So, a very simple way to look at it is, you've got to put enough money aside in those 45 years to cover the 40 that you don't work. What's going to happen today is I'm delighted to be joined by Charlotte Jackson, who is Head of Guidance Services at Money Helper, which is part of the Money and Pension Services, the official organisation in the country. You give free guidance, your organisation, don't you?

• 3:07Speaker 02

  We do.

• 3:08Martin Lewis?

  I strongly recommend it. If you need a decision, go to free guidance first, free one-on-one help about pensions you can get. It's very important. I'll be going through later with Charlotte the difference between guidance and advice. And advice is important too, but it tends to only be for those people who have bigger pension funds because you have to pay for it. Whereas the guidance that you get from Money Helper or Pension Wise, which is part of the same organisation, is absolutely free. So, here's the format. Let me tell you before you start. I have loads of tips I want to give you, and we have also had 1,204 questions about pensions. Clearly, we're not going to do all of them. What we've done is we've categorised them and we're going through the most common questions and taking a sample question of each type. So, if your specific question isn't being answered, don't worry. I hope a question

• 3:51Martin Lewis?

  that's similar will give you the answer too. Plus, I've got lots of tips to do, so I'm going to start there. First thing you need to know, there are three main categories of pension. Do not confuse them. Here's my simple overview. The first is the state pension. Every year you work in the UK builds up national insurance credits, as can looking after your child or caring for someone or being ill. Most people will now need roughly, and it is very rough and don't quote this figure, don't get in touch with me saying, "It's not 35 years for me." Most people will now need roughly 35 years to qualify for the full new state pension, which is currently £221 per week for a single person. The state pension payment is taxed just like other income,

• 4:37Martin Lewis?

  and it's currently paid when you hit 66, though that age is gradually rising to 67, and it is paid whether you work or not. It's very well worth checking your state pension forecast and seeing if you can boost your state pension, but today's programme is not about the state pension. So from here on in, I'm focusing only on private and workplace pensions. And that effectively is a pretty good way for me to move on to the next two categories of pensions. All private pensions and most workplace pensions are money purchase pensions, also called defined contribution or DC pensions. Now, you'll know if you get one of these if when you check your pension statement,

• 5:18Martin Lewis?

  it shows you an amount of money that you have in it, that you've built up a pot of money. You know, you've got £18,212. That is a money purchase pension. With these, the investment is built up via the pension firm, and you can use the money in the pension pot from age 55, although that is rising to age 57 in 2028, or you can leave it there to grow. And the pension pot size depends on two things. First, how much have you put in, or how much has your employer put in as well? And second, the investment growth.

• 5:52Martin Lewis?

  So that is money purchase pensions. The other type is that some workplace pensions are salary schemes, defined benefit schemes. Now, these used to be seen as the gold standard. It's where you get a set percentage of your final or average salary each year. Let me explain. So let's say you might get a sixtieth of your final salary each year. So if you work for the company for 20 years, that's 20 sixtieths, one third, one third of final salary or average salary. Now, I have to state, while some of the tips I'll be talking about through this do apply to salary schemes as they're rarer these days, the main focus will be on the money purchase schemes, which is the vast majority of workplace pensions and private pensions. If you're not sure if you've got a salary scheme, you'll know if when you check your

• 6:35Martin Lewis?

  statement, it shows your current salary, how long you've been with the firm and your predicted final income as opposed to a total amount invested. Okay, so that's the overview of the different types of pensions. I'm just going to go straight in with a question that I have for Charlotte here. Stacey, I have a final salary pension that was deferred when I left in 2004. As it's supposed to be based on salary at retirement and I now work for another company, will it just be based on my 2004 salary? Well, that's what she's asking. I presume she's also saying, or will it maybe be upgraded or uplifted with inflation? Or will it be comparative to what she's earning now? How does it work for an old company if you're in a salary scheme?

• 7:13Speaker 06

  Well, it's a really good question because a lot of people have those pensions that they've saved into in the past and then changed employers, particularly defined benefit schemes. So because Stacey isn't contributing to it anymore, it'll stay as it is. There may be some slight adjustments to it, but she'll need to get a statement from that scheme. And as she gets closer to retirement, they'll be issuing it and saying how they're looking after it and any charges that may be coming out of it.

• 7:37Martin Lewis?

  So let's say she's got 10 years worth. Let's say, or let's say she's due to get 15% of final salary. That would be 15% of her 2004 salary.

• 7:45Speaker 06

  Of the salary of when she was, before she left.

• 7:48Martin Lewis?

  Her last.

• 7:49Speaker 06

  Her last.

• 7:50Martin Lewis?

  That she was employed.

• 7:50Speaker 06

  Her last. And there's something about the amount of time she's been receiving that salary. So if she had a salary uplift, for example, three months before she left, then what they'll do is, is they'll look at. A wider timeframe. So it's about where you're at and the average of that at the point to which she leaves.

• 8:07Martin Lewis?

  Which actually brings it to a tip from me. If you were in a defined benefits or a salary scheme, they're both two names for the same thing, and you're thinking of working or less or going part time in your final years at the firm, be very, very careful to check the terms first, as it may mean if you're getting a percentage of your final salary, that you might get a percentage of your part time salary, even though you'd worked there 20 years full time. I'm not saying it will always happen. I'm saying it is absolutely worth checking. Now, let me move on to my next tip.

• 8:39Martin Lewis?

  Do not accidentally leave your private or workplace pension to your ex. You clearly don't want to do that. Now, you can't usually leave pension savings in your will. If you die before taking your pension, the provider or the trustees decide what to do with it. But there is a way you can tell them what you would like them to do with it, and that is called an expression of wishes form. It also has a name of nomination form, and it tells them your preference. It's not binding, but it's very strong evidentially. Now, normally when you sign up for a pension, you will have probably filled one of these in without actually realising it as you went through the pension signup process. And lots of people fail to keep it up to date. And I have had countless messages when people have heard

• 9:21Martin Lewis?

  me say similar before go, I hadn't realised, I can't believe who my expression of wishes for. I had this one message that was sent to me on X. It said, Martin, it's just happened to us. My mother in law died, only for her pension firm to want her ex's details. They split 20 years ago. She'd be spitting feathers if she knew. So if you have a pension or pensions, whether it's defined benefit or defined contribution, money purchase or salary scheme, go and have a check if it's online, or if it's not online, get in touch with the trustees or the pension provider to check who your expression of wishes or nomination form is made out for, and it's still who you want it to be. Now, look, the truth is, if you signed up for your pension 10 years ago, and it's still the person that you signed

• 10:05Martin Lewis?

  it at the time, and you'd been married and it would have been your husband or wife or whatever, you'll probably be fine. But you will know if your circumstances may have changed, and that's something that you do need to check. Now, on to probably the most important thing I'm going to tell you about pensions today. Pensions have two superpowers. Okay, this is crucially important. Pensions have two superpowers in my view, and I want to explain them. The first pension superpower is this: you contribute to your pension from your pre-tax income. And that means you get more savings than it costs you. So imagine you're putting £100 into your pension from your salary, which is how many do it.

• 10:49Martin Lewis?

  I'll be talking about self-employed and nest pensions, which is slightly different later. But let's just take this as a concept, because the concept works for everyone. Now, normally, for somebody who pays tax at the basic 20% rate, for every £100 you get in your salary, you only take home £80 of it. Yet pension contributions are made before the tax is taken off. That means you get to invest £100, because £100 comes off your salary, but you only lose £80 in your pay packet. So it's effectively, the tax relief is the difference. You get a £100 investment, it only costs you £80. If you are a higher 40% rate taxpayer, you get a £100 investment, you only lose £60 from your pay packet.

• 11:30Martin Lewis?

  If you're a top 45% taxpayer, you get a £100 investment, you only lose £55 from your pay packet. Brackets, answers on a postcard if you think it's fair that the people who earn the most get the most tax relief. But that's not what we're discussing today, we're doing the practicals, so I shall move on. And that is the crucial superpower. Quite simply, when you put money in normal savings, in normal investments, it's coming from your after-tax salary. So you've already lost that 20 quid, or that 40 quid, or that 45 quid to the tax office. But when you're putting money in pensions, you have that big boost head start because you're paying from your pre-tax income. And that is pensions' first superpower.

• 12:21Martin Lewis?

  And now Charlotte, a question for you.

• 12:24Martin Lewis?

  Stan says, "I'm almost 51 and will be able to access my personal pension at 57. I already pay a sizable amount in each month, but should I increase this as I get closer to 57, basically using some savings to offset lower take-home pay each month? It would be paid in at 20% tax relief." So what he's effectively saying is, should I pump extra money in my pension before retirement, knowing that I can take it and effectively utilise my savings to do so, which you can do so as long as you're not... What's the maximum you could put in a pension each year?

• 12:57Speaker 06

  It's a maximum of 100% of your take-home pay or 60,000, whichever is more.

• 13:04Martin Lewis?

  Yeah, and there used to be a lifetime limit. There's no lifetime limit on pensions yet anymore, although there is a lifetime limit on the tax-free cash you can take. It's just over a quarter of a million pounds. So that's the amount that people are able to put in. If you take an income from your pension later, then it can drop to £10,000. And there's rules about carrying forward, which are also complicated, which means that you may be able to put more in if you earn over £60,000 in certain years if you didn't put it in in previous years. But as a basic rule, you can put in up to your salary or £60,000. So if he's got more money he can put in here, he's asking, is it worth doing just before he retires?

• 13:41Speaker 06

  It's obviously better to put your money in when you're younger, so that's when we're really trying to encourage it. But actually, if you have money to spend to invest into your pension and you can afford to do it, put it in. There are tax relief incentives on it. Your employer might be able to offer things like salary sacrifices, and it may give you more options later on down the line. But it won't work as hard for you as that first pound that you put in when you're in your twenties, but that, you know, it gives you options.

• 14:08Martin Lewis?

  And that reason is simple, it just has longer to compound if you put it in earlier. I'll do that horrible, horrible, very rough rule of thumb that scares the pants off everyone. Don't panic about this, no one actually does what I'm about to say, but it just gives you an idea. It says that the amount you should put in your pension is you take the age when you start contributing. So I'm, you know, I'm 22. Well, I look 22, we'll cope with that, on the radio at least. So half of 22 is 11, I should put 11% of my salary in for the rest of my life. If I started at 40, it'd be 20% of my salary in for the rest of my life, because you haven't got as long for it to compound. And the most important lesson to take from that, and by the way, it does include employers' contribution, is not the actual percent, it's just the earlier you do it, the better and the less you have to put in of your income later on in life. Now, I think we probably need some more superhero music.

• 14:57Martin Lewis?

  The second pension superpower is only for employees. Do not throw away a hidden pay rise. If you save in your pension, your firm must contribute too. So by law, if you're an employee aged 22 to 66, earning over 10 grand, you are automatically enrolled into a pension. In other words, you're opted in to contributing without being asked. Now, I'm a big supporter of this because it pushes people into good financial behaviour, even when they're not sure what they should be doing for later in life. And especially because crucially, if you're opted in, your employer must contribute too. It's a bit like an extra amount of salary. So for a money purchase pension,

• 15:41Martin Lewis?

  the minimum contribution is 8% on earnings, and it's specifically on the amount you earn between 6,240 quid and 50,270 pounds. And the employer must contribute a minimum three percentage points on that. I know people get confused about percent and percentage points. So if it's 8% of your salary, then 3% of that, percentage points, but you know what I mean. 3% of that comes from the employer and 5% comes from you, and that totals eight. So you can see what I'm talking about there. Although some employers will contribute more. Now, that is a huge boon. It means you're being paid more in total, though admittedly, your disposable income is lower because of your contribution. So you lose a little in the short run, but you gain a lot in the long run.

• 16:24Martin Lewis?

  So let's just think about this if we really take this on board, if you put this together with superpower number one. We'll start with a basic rate taxpayer. You put £100 in your pension, but it only costs you £80. But because you put £100 in your pension, your employer has to add £60, assuming you're in the right level of earnings. So that would mean you're getting £160 a month of investment. You're only losing £80 in your pay packet to do it. I mean, that is unbeatable. There is nothing else like it out there. If we do it as a high rate taxpayer, again, you're still getting the same £60 added, but your tax relief is better. So for a high rate taxpayer, you get £160 worth of investment. It only costs you £60 in your pay packet.

• 17:07Martin Lewis?

  For a top 45% rate taxpayer, you get £160 worth of investment. It only costs you £55 in your pay packet. When you combine those two superpowers, you can absolutely see why this is so important. Now, I have a couple more tips on that, but I'm going to do some questions with you first, Charlotte. So I'm going to keep this one anonymous. I work in a small family run business who gave me the option of pay rises or paying into my pension. They can't afford both at the moment. I have a ISA for retirement, a lifetime ISA. But is there another type of pension I can invest into even if my employer won't? Now, I have to say, my instinct is that's illegal, that the firm is being illegal. I mean, if you are an employee in any firm in the UK,

• 17:50Martin Lewis?

  as long as you're earning over £10,000 a year and your age between 22 and 66, as I mentioned earlier, you have to be automatically enrolled into a pension, don't you? And they should be contributing to it. Am I missing something?

• 18:01Speaker 06

  No, obviously there's some details, as you say, about what their age is, what their pay is, what number of hours they do. But they should be offering you access to a pension. So the second thing is, is it shouldn't be a choice between them paying into a pension and you having a pension and having pay rises. They're distinct things. There's a bit in there, but no, you shouldn't be asked to choose between having a pension and having a pay rise.

• 18:23Martin Lewis?

  And also, they can't coerce you to opt out of a pension.

• 18:26Speaker 06

  Absolutely not.

• 18:26Martin Lewis?

  So, you know, you are entitled by law to be automatically opted into a pension, that they must make the minimum contributions to. And they should not be pushing you to opt out of it. I mean, all of those things. Who would you complain to about that?

• 18:39Speaker 06

  So in that instance, there is something called a whistleblowing line, which is delivered through the pension regulator. So you can report your concerns to the pension regulator and they will look at investigating it.

• 18:52Martin Lewis?

  What I would say to you on this, so I understand you prob-, what I'm reading between the lines here, it's a small family business. You work with them, you like them, you know that it would put the business under pressure, you want to keep your job. So you're considering these things yourself. Now, ultimately, paying into a pension through your employment scheme means not only do they have to contribute, but you also get the tax advantages. So that's a double whammy. And that would beat a lifetime ISA generally, where you just simply can put the money in from your after-tax salary, although then it's tax-free, whereas taking money out of a pension isn't tax-free. As for what type of pension, we're going to be coming on to self-employed pensions in a bit, to give you an option if you were going to do it yourself. But the family-run business isn't holding up its entitlement. And, you

• 19:34Martin Lewis?

  know, this applies even to the big cases about it, nannies and domestic staff, right? If they're earning over £10,000 and are aged between 22 and 66, then the employer, as much as paying them on the payroll, is legally obliged to give them a pension and to do the match contributions. It's part of the cost of employing somebody in this country. A second question on this one. My employer won't increase my pension, but tells me to go it alone with an AVC. Can they do this? I presume if it's an AVC, then it's probably a defined benefit pension, is it? Yeah.

• 20:03Speaker 06

  Yeah. AVCs typically are defined contribution, but they can be added on to other things.

• 20:08Martin Lewis?

  Additional voluntary contribution.

• 20:09Speaker 06

  Yeah. Public sector pensions sometimes also offer AVCs. So teachers will sometimes have their normal scheme and AVCs attached to them.

• 20:17Martin Lewis?

  Okay. So can they tell them to go alone with an AVC if they won't increase pension? I mean, it depends if whether they're up to the maximum or not, doesn't it?

• 20:24Speaker 06

  Yes, absolutely.

• 20:25Martin Lewis?

  So this is, this is a really important point. In fact, I'm going to move on to a little bit of a tip of this. Lots of people ask me about opting out because of the cost of living. I'm generally against opting out because you're effectively foregoing a pay rise from your firm. But even more specifically, you need to be very careful about dropping contributions. Let's say you are on a minimum pension scheme where you are contributing 5% of your salary and your employer is adding 3% on top. You may say, I just want to drop it a little bit. I want to go to 4%. If you drop below the minimum, the employer is no longer obligated to contribute.

• 21:07Martin Lewis?

  Some employers may contribute, but they are not obligated to do so. So if you're on, I do 5%, they do 3%, that's 8%, and you drop it to 4%, you may now only have 4%. So the first thing is I'm generally against dropping down, although there are circumstances. If you're in terrible debt, it may be worth it in the short term. But you should also check if you're just going to drop down the amount you're contributing, whether that would impact your employer's contributions. You should have a staff handbook or something similar that would tell you. Or you should be able to talk to your payroll department and they should tell you. But it is very important to consider before dropping down. While I'm on auto-enrollment, I want to talk about non-auto-enrollment, auto-enrollment. So you heard those age limits, aged 22 to 66.

• 21:51Martin Lewis?

  And you've got to earn £10,000. But there are certain people who are outside of the age limits, who are not automatically opted in, who can choose to opt in. And if you choose to opt in, your employer has to contribute. Those are people aged 22 to 66 who earn £6,241 up to £10,000. Now, obviously, that's on a lower income, so you might struggle to contribute a bit, but you might want to consider it. But just as importantly, anybody aged 16 to 21 or 67 to 74, because you're outside the age limit.

• 22:31Martin Lewis?

  You are not automatically opted in, but you can choose to do so as long as you earn over £6,241. So if you're an 18-year-old earning a good whack, living at home with very little expenses, I mean, that's absolutely the sweet spot for pensions. You'll never be able to afford to contribute as much as a percentage of your salary as you can then, and you can make your employer match it. I mean, it's a shame for me that we don't start auto-enrollment at an earlier age. The government now has the power to lower it, but it hasn't done so. So there you go. Those are the two pension superpowers. Let's do a closing superpower theme tune.

• 23:15Martin Lewis?

  Now, my next tip is all about salary sacrifice. Salary sacrifice is where employers agree to a salary reduction in exchange for the firm to put that amount in a pension for them. So it's just another way of an employee contributing to a pension. Some firms offer it, some firms don't. The reason that you would do it is both the employer and the employee save on national insurance contributions, meaning a gain. Plus, some employers also give their gain on national insurance to the employee. They don't have to, but they may well do so. So let me give you a simple example. Someone earns 30 grand a year. If you save £125 a month pre-tax into your pension, and the employer adds £75 on top, they would have £2,400 in the pension at the end of the year, and their take-home

• 23:58Martin Lewis?

  pay would have been reduced by £1,200 a year to do so. But if the same was done by salary sacrifice, so their salary was just reduced to £28,500, and they're then not contributing because the firm's contributing it all for them, they'd actually take home £120 a year more due to paying less national insurance, and the firm would gain around £200, which it may give to the employee. So salary sacrifice, if you're offered it, is beneficial to you. The only negative is because your salary is actually lower by law. Let's say, for example, you're applying for a mortgage. You've got a lower salary, so they might give you a smaller mortgage on the back of it. So you do have to factor that in, but in general terms, if you're offered salary sacrifice, it's a winner, especially if your firm is giving you the national insurance contributions. Okay.

• 24:45Martin Lewis?

  Another quick tip, let's just talk about the technicals of self-employed pensions before we get on to how you do it. Now, if you're self-employed, or on a private pension, or you're on the NEST scheme, which is the big government group pension, then I explained before that you get tax relief at source when you're contributing to a pension. That 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.

• 25:28Martin Lewis?

  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. Now, 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."

• 26:11Martin Lewis?

  Just to be technical, the LISA scheme isn't a pension, it's a retirement savings 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% added on top up to four grand 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...

• 26:54Martin Lewis?

  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 aged 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? I 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.

• 27:38Martin Lewis?

  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. Charlotte, what do you think of this?

• 27:47Speaker 06

  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.

• 28:08Martin Lewis?

  Now, if you've got any other form of savings you could use, maybe you would be using that to support you and not the LISA money to support you. But if you have to use the LISA money, you have to use the LISA money. And 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 LISA 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. It's funded by a government levy on the financial services industry, I get great feedback on

• 28:52Martin Lewis?

  it, over 50s 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.

• 29:14Speaker 06

  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. But 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 circumstances, 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.

• 29:47Martin Lewis?

  But it's good technical advice. You want to know how your scheme works. You want to know how the tax system works. You 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. 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,

• 30:29Martin Lewis?

  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 just doesn't work. The maths 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. 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 where and which and why. That 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,

• 31:14Martin Lewis?

  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 program, 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, how, but how does that work for me? Because my circumstances are nuanced, different. Call up and get one on one help. It'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 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.

• 31:59Martin Lewis?

  Suzanne, self employed advice would be great. I have various pensions from my past, but not 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. Someone 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 in 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?

• 32:34Speaker 06

  Well, the first one is, is you've already mentioned, which is looking at things like Nest. So they were set up by the government to provide a, 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. But for self employed people, you're looking at SIPs, self invested personal pensions, or what are called SASSs, small self administered scheme. SIPs and SASSs 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, your basic products like Nest.

• 33:16Martin Lewis?

  And stakeholders.

• 33:17Speaker 06

  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 SASSs, that may cater to your needs. There are different overheads with schemes like SIPs and SASSs. So there are responsibilities that you need to take on if you set them up.

• 33:36Martin Lewis?

  Can I just check, when you say help you with your business, what do you mean by that?

• 33:39Speaker 06

  So lots of self-employed use sips and sasses because they provide ways to allow you to also invest your savings into your business.

• 33:49Martin Lewis?

  Maybe buying a property for your business or something like that.

• 33:51Speaker 06

  Exactly. So, or if you've got a growth or expansion plan. So, so they are popular, but they come with heavier responsibilities and heavier costs.

• 34:00Martin Lewis?

  So I'm just gonna, I'm gonna 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. I'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 can, they will do it automatically for you. They'll put you in, they'll move you through, through the lifetime. Generally, when you're getting close to retirement, you want to minimise your risks because if you think about investing,

• 34:42Martin Lewis?

  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. So 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 crystallise 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

• 35:25Martin Lewis?

  of things, just individual shares across the world or funds or 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, I invest in, I'm just, the answer is, well, get a self-invested personal pension, you can 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 Six, seven hundred pounds a month then, and you're just starting off.

• 36:06Martin Lewis?

  A financial advisor will be delighted to take your business and go and get them to help you through it.

• 36:11Speaker 06

  Yeah, 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 SASSs 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, how do you get that investment back? How do you hand it over?

• 36:37Martin Lewis?

  And someone could call Money Helper and you would be able to give guidance on, you know, I, I work in an office block, so 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, you could go that specific.

• 36:50Speaker 06

  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 is they're looking at, some of those financial decisions that they need to be working through.

• 37:03Martin Lewis?

  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? I 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, it tends to change in tranches. The, 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. I don't know if I'll still be doing this. Do you know what? I hope not, if I'm really honest.

• 37:48Martin Lewis?

  But look, we've already talked about where they can save for their retirement. I mean, if they're employees, an 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 three thousand six hundred pounds a year. Now, to put in three thousand six hundred pounds a year, if you're not an employee, would cost you two thousand eight hundred and eighty pounds. The rest is tax relief, so you're getting three thousand six hundred pounds for the cost of just two thousand eight hundred and eighty pounds. And anybody can do that, or almost anybody, which means a newborn baby can get a pension.

• 38:30Martin Lewis?

  And indeed, I know grandparents who open them for their grandkids, liking the idea, it'll trigger memories of, they'll remember me in fifty 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 Ickle ones are oldums like me. So I know that amongst my team, and me included, I, to be honest, my daughter has a pension already. Because I put, as 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.

• 39:15Martin Lewis?

  Look after your own finances first, you need to keep a roof over the head, keep them fed, keep them warm, that's more important than planning for the pension. I 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 not wrong with it. Charlotte, are you of the same mind?

• 39:39Speaker 06

  Definitely, we love it. Why wouldn't you give that gift if you could afford to, particularly as you say, because that's your superpower?

• 39:45Martin Lewis?

  Absolutely. Now, we have one last section here, and it is the biggest question set that we get whenever we talk about pensions. Consolidation.

• 39:59Martin Lewis?

  Does that feed through to the calls that you get, by the way? Is it the most asked question you get?

• 40:03Speaker 06

  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.

• 40:18Martin Lewis?

  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. Don't pay for it, you don't need to pay for it, 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?

• 40:54Speaker 06

  To Bob's question, there is an advantage dependent upon what the charges you're paying on your pensions. So 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.

• 41:16Martin Lewis?

  Now, is it that one of those pension pots may just have absolutely lower charges than the others? Or is it that the charges are stepped? So if you've only got a small amount, it's a bigger proportion, or is it both?

• 41:26Speaker 06

  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 being simpler. So 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.

• 41:46Martin Lewis?

  Boosted annuity rates.

• 41:47Speaker 06

  Exactly.

• 41:48Martin Lewis?

  Which is annuity as a payment each year for life once you transfer it later.

• 41:52Speaker 06

  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 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 other good benefits on, but you may have a small pot. So if you have a couple of small pots that.

• 42:28Martin Lewis?

  So small pot is a pension of under ten thousand pounds.

• 42:32Speaker 06

  Yes, yes. So 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.

• 42:49Martin Lewis?

  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 so let me try and sum this up. Please tell me if I'm wrong. Okay, so the first thing, yes, consolidating easily admin- eases the administrative burden. And can mean lower fees if you choose carefully which pension you're moving them all into. Now 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 on talking to Charlotte and and other work.

• 43:33Martin Lewis?

  First, are there any perks in your existing pensions such as boosted annuity or other rates? Which should be missing out on if you gave it up. Second, 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're going to 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 great is 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 if even if it's possible, you could be giving up unbeatable benefits. Let me make give you a golden rule.

• 44:18Martin Lewis?

  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 in when it comes to taking money out of salary schemes or defined benefits of their court. So 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

• 45:02Martin Lewis?

  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. Obviously, 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. But we're already over time, and I think

• 45:43Martin Lewis?

  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 program, 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 program in its own right, too.

• 46:06Martin Lewis?

  And 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.

• 46:47Speaker 07

  Martin 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 [email protected]. 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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