CEO Today reached out to Anthony Morrow to discuss workplace pensions. Anthony is CEO of evestor.co.uk, an online personal finance and investment adviser designed to help people of all ages, experience and wealth take control of their financial affairs.
There has been a lot of changes to workplace pensions recently, what is your take on these?
On the whole, changes to workplace pensions have been a great success. Shown not least by the growth of today’s pensioners’ income, but also in the future, could help to reduce the difference between someone’s income when they’re working and when they are retired.
Since the introduction of auto-enrolment in 2015, anyone can join their company pension scheme with their employer also contributing. Eventually, combined contributions will reach 8% of your salary. It’s like getting additional pay from your employer and putting it straight into your retirement fund.
The need to save early and regularly has never been more important. Retirement ages are increasing and there is a growing realisation that we’ll have to work longer to retire comfortably. Whilst workplace and state pensions will provide some support, on their own it’s unlikely to meet the standard of living that many people are expecting to have in retirement.
Have you seen a difference in the way that people think about their retirement savings?
The success of the workplace pensions can quickly become a double-edged sword. It runs the risk of people becoming complacent, they may think that through a workplace pension they are saving enough for retirement. In reality, their savings may not be sufficient. With encouragement from their employer, people should be looking for additional options out there to “top up” their workplace and state pension.
Those who fail to make additional savings, and over estimate the size of their workplace pension, will find themselves more cash-strapped than anticipated when it comes to retirement.
To put this in to perspective, our analysis found that only after 24 years in work will auto-enrolment pensions be worth more than the latest student loans, meaning that today’s graduates will only see their pension outgrow their debt at the age of 45. From a starting position quite considerably set in the red, the need for saving is more pertinent than ever for the younger population.
What would be your advice for those looking to boost their pension pot?
One way to do this is to check your pensions are working in the most efficient way and getting the highest growth. The average person will have 11 jobs in their working life – that means 11 different workplace pensions. Consolidating these in to one single pot, could see your savings get the best returns.
People should also start to look at complementary products to sit alongside their workplace pension. Recent ONS data shows that although retired households have tripled their incomes in the past 40 years, this is being driven by personal private pensions.
For those with existing pensions or who are self-employed, then it’s important to ensure you are making the most of the tax benefits that pensions also offer.
The other efficient savings plan people should consider is the Individual Savings Account (ISA) which, like a pension, has various tax benefits attached to it. Or, if you’re happy to leave your money for a longer period of time, consider investing your savings. It is easier than ever to gain access to some of the world’s largest funds, just remember don’t invest in something you don’t understand and always seek professional advice.
What would you suggest is the best action for the less financially-savvy?
Decisions around finances can be difficult but there are services ready to help you to decide on the best course of actions to suit your needs. Personal and affordable services are available to take on these issues for you, so it’s worth speaking to the experts to help make your money go further.
Make sure any advice you do receive is regulated by the FCA. Many advisers claim to offer advice, but if it is not regulated and the advice you receive turns out to be unsuitable for your needs, you have no one to hold accountable. Doing your research and finding the right service for you will increase your chances of having a stress-free, secure future.