The following is a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 34 or scroll on to read the conversation.
PHILIPPA: Welcome to the last Pension Confident Podcast of 2024. As we wrap up the year, what better time to zoom out and take a look at where the whole pensions industry is at right now - and where it might be going?
The past decade has seen a lot of change in British pensions with Auto-Enrolment at work, new tech and more flexible rules making it easier for all of us to plan and use our savings. And no sooner did the new government take office than the Chancellor made more alterations to pensions in the Autumn Budget. So, what might happen next?
To help us unpack all this change, I’m delighted to say we have three experts in the studio. Damien Fahy is Founder of Money to the Masses, Sam Brodbeck is Money Advice Editor at The Telegraph, and Romi Savova is PensionBee‘s own Founder and CEO. Hello, everyone.
DAMIEN, SAM, AND ROMI: Hello.
PHILIPPA: Here’s the usual disclaimer before we start. Please remember, anything discussed on the podcast shouldn’t be regarded as financial advice or legal advice, and when investing, your capital is at risk.
PensionBee’s origin story
So, Romi, as I said, there’s been a lot of change. There’s going to be more to come. You got into this industry, it’s 10 years ago now? I know you wanted to shake things up, but I’m wondering why it was pensions that grabbed your attention?
ROMI: Well, I had a personal problem when it came to pensions. I tried to move my account to anyone who’d take it and I discovered that the whole system just doesn’t work well for consumers. It inspired me to do something about it and to solve that very particular problem of people wanting to have transparency and visibility over their retirement savings.
PHILIPPA: It was a fresh idea, wasn’t it? Did people get it straight away?
ROMI: Well, a lot of people said, “I didn’t really know that I could transfer my money, that I could even move my pension. I thought it just had to stay where it was”.
PHILIPPA: Which really proved there was a problem.
ROMI: Absolutely. The pensions industry back then, and even now, loved paper. Paper would just arrive in people’s mailboxes, and they’d put it in a drawer.
PHILIPPA: What did the industry say to you? Were they largely: “it’s not broken, why are we trying to fix it?”.
ROMI: Well, some providers have always been fairly responsive and fairly easy to work with. Others have been completely obscure and opaque and deliberately obstructive in relation to their own customers.
SAM: Name names!
ROMI: Name names? Sam, I think you’ve done the naming in the past. There definitely are good companies out there who recognise that their responsibility is to the customer. But I’d say that there are equally many who’ll happily [and] deliberately obstruct consumers from being in control of their own money. We think that a pension is your money, and you should be fully in control of it. [Our] government’s job is to help support you to achieve that.
PHILIPPA: What’s it going to take to make that happen?
ROMI: Well, a ‘Pension Switch Guarantee‘, I think, is the obvious reform that we’ve been asking for many years.
PHILIPPA: How would that work?
ROMI: Well, the same way that if you want to move any other financial asset that you have. You tell one company that you’re joining, and another company that you’re leaving, and they have 10 days to move the money from one place to another.
PHILIPPA: Like swapping your utility provider?
ROMI: Just like that.
PHILIPPA: Yeah, it sounds great.
Billions of pounds lost
PHILIPPA: Your idea was around, as you say, moving pensions. It was also around this idea of gathering up fragmented or lost pensions. Is that a big thing?
ROMI: Oh, it’s absolutely enormous! I mean, the average person switches jobs around 11 times. Every time you switch jobs, you get a new pension. You really have to be quite on top of it to keep your money together.
PHILIPPA: So, you think people do lose track of them?
ROMI: Absolutely. They lose track of them. They pile up the paperwork. Some of them get lost entirely. We estimate there’s around £50 billion of lost pensions.
DAMIEN: And just to add to that point, before I came to this podcast, I was asking some of the people who work with me. One of the guys said, he’s 28, he’s had six jobs and moved house five times. He said, that’s the biggest problem: lost pension. So even he finds it difficult to keep track. And he works in the industry! So, it’s a big problem.
SAM: I was just going to say, I think that employers have quite a big role here. Most people are building up pensions through their companies. I feel like I’ve never got something from my company saying, “do you know you might have these other pensions? Why don’t you bring them all here? Here’s an app.” And I think that’s the touch point people mainly have with these things, but I don’t think I’ve ever received anything, any help that way.
PHILIPPA: Oh, no. I think people say this all the time, don’t they? Because people get their pensions through their I think that adds to the sense that you’re detached from it. You don’t have to think about it because your company is thinking about it for you.
DAMIEN: I think you’ve just hit upon something that’s a problem in this country because historically, we had ‘final salary pensions‘. People thought that as long as I work, then I’ll get what I’m owed, and they’d have a pension that was based upon their time in employment and their final salary. We’ve transitioned to a world where it’s actually based upon your own pot, most people are paying in, and final salaries largely have disappeared. So, I think the mentality hasn’t moved on.
Why do people disengage?
PHILIPPA: People engage with other sorts of financial issues and questions. But pensions... You say pensions, and you can see people shutting down, can’t you? Why is that?
SAM: Is it just that they’re locked away. Everyone knows you can’t touch them? Maybe. I think in a way that an ISA, you know that you can take out and people do put bits of money in and out. I mean, in other countries, I think in New Zealand, you can take money out maybe for a first property from your pension.
PHILIPPA: OK.
SAM: So, it engages people a bit more. When it gets to a decent size, they can think, “well, I could actually do something with that now”. Whereas, OK, you get a statement that says, “when you’re 65, your pension is going to be £500,000” and you’re 25 [now]. It’s slightly irrelevant.
PHILIPPA: This sheer complexity around the language as well, the language of pensions – it’s not transparent, is it? There’s some terrible terminology in pensions.
ROMI: Absolutely. I do think these things are changing, though. I was at a birthday party this weekend, and maybe this is specific to me, but people do come and want to speak about their pensions and ask about their pensions.
PHILIPPA: I think it’s you, Romi.
SAM: Was it a child’s birthday party?
ROMI: It was a children’s birthday party! It wasn’t a child, I can promise. It was a parent.
PHILIPPA: That’d be quite unsettling.
ROMI: It was a parent. They were quite interested. They’d received a letter, and of course, the letter was impenetrable, but that did encourage a bit of conversation. I do think that things are changing. Sam, to your point, as the value in the account grows, people will pay more attention to it because it’s just a bigger sum of money.
SAM: Yeah, I wonder as well. Maybe this is a depressing way to think about things. To date, pensioners have been sort of OK. Largely, they’ve had final salary, they’ve had the State Pension. There’s probably going to be a generation, Gen X or something, that has none of that - and actually retires quite poor and they only have the State Pension. Maybe then we’ll get a bit more of, “actually, I should probably find out”, because like you say, why would you bother engaging if it’s been OK? Maybe we’ll have this period where they need a lot more help than pensioners today.
PHILIPPA: There’s an education piece here, isn’t there? So, should we be seeing this in the curriculum?
ROMI: Oh, absolutely. I think that there’ve been some initiatives to introduce money into the curriculum. But even when you look at those initiatives, pensions tend to be quite missing.
PHILIPPA: Yes.
ROMI: Even amongst money experts, sometimes there’s a tendency to shy away from pensions because they feel a little bit more complicated.
PHILIPPA: Do they need to be as complicated as they are?
ROMI: Absolutely not. A [workplace] pension’s a pot of money. You put money into it, the employer puts money into it, the government puts free money into it through tax relief. So, you get extra brownie points. Then it grows because it’s invested in some of the world’s biggest companies. When it comes to retirement, you can spend it. No more complex than that.
The revolving door of policy changes
PHILIPPA: So, how did we get here then? Why is it so strong about process and rules and regulations and complexity and so off-putting?
DAMIEN: I think it’s because the rules are changed too frequently. It’s a game they’re playing, but the rules [are] always changing. The age at which you can access it has changed since they first put money in.
PHILIPPA: Yes.
DAMIEN: The speculation about how much they could get in terms of tax-free cash has always been said it could change. I think people, therefore, think “well, this game is I put in, I can’t access it, but it could be completely different”. That needs to, I think, change. That’s through education, but I think a lack of... I think we need to have a period of calm around pensions.
PHILIPPA: Certainty?
DAMIEN: Yeah.
PHILIPPA: Because as you say, they change the rules. Why do Chancellors focus on pensions?
ROMI: Because it’s a really attractive and tempting pot to raid.
PHILIPPA: OK.
ROMI: If you’re in the Treasury’s position and you look at the tools that you have in your toolbox, pensions are usually one of them. But I tend to come back to the fundamentals of retirement provision. What is fundamentally true is that the State Pension is generally not enough to sustain your retirement, and therefore, you must have private savings. Even if taxation does change, as long as you continue to get free money from the government for putting contributions into your pension, it tends to be a good idea.
SAM: No government’s ever going to agree to not change them. I think Romi’s right. There are going to be lots of little changes. Hopefully, that can mainly be ignored by lots of people. As long as the fundamentals stay, free money for your retirement, then...
PHILIPPA: Yeah, it’s obviously a good idea, isn’t it?
Big pension changes that have shaped the past decade
PHILIPPA: Thinking about the changes we have seen over the last 10 years - not the small stuff, but the big stuff - what would we pull out as the really significant stuff?
ROMI: Auto-Enrolment, for sure. I think Auto-Enrolment has put a new generation on a better footing for the future. If you’re in your early 20s and you’re auto enrolled and you’re saving throughout your life, come the age of 65, you’re probably going to be doing quite all right. Yes, you still probably need to top-up [your pension]. But generally, you’re going to be on a much sounder footing. I do think that’s been absolutely transformational.
DAMIEN: I agree. I think Auto-Enrolment is one of the best things that’s happened. We just need to, I think, shift it slightly, start to increase some of the levels of contribution. But I do think that was a fundamental [change] that’s been one of the best changes that we’ve had in the UK.
PHILIPPA: Yeah, I know in the recent Budget, Romi, I know you were disappointed not to see it expanded to younger workers.
ROMI: Yeah, not expanded to younger workers. I think not extending the rate of contributions that should be paid in. Because a lot of people do just do what the norm is, also known as the ‘default’ in pensions, because we have to have very special words for simple things.
PHILIPPA: An impenetrable word for it.
ROMI: Impenetrable words for simple things. Yes, that was disappointing. I think given the National Insurance (NI) raid on businesses, it’s unlikely that those reforms will come through over the next couple of years. And so more than ever, that sense of personal responsibility is something we need to keep pushing forward as an industry. Because people do need to recognise that they’re on a decent footing, but it’s not yet quite enough, and you can make that difference.
PHILIPPA: Yeah, and particularly since work patterns are changing so much and life expectancy is changing so much. I mean, should we get into that a bit? How do pensions need to respond to those changes? Because they’re here already, it’s going to be more. Our kids are going to live longer than us all being well, and their work patterns are going to be completely different, even to ours. What needs to change with pensions to reflect - to work well for consumers in that way?
ROMI: Well, I think maintaining consistent contributions is probably the number one thing that you can do to ensure that you can create that pension wealth for yourself in the future. I think also being quite interested in where your money actually is, which is becoming a greater subject of conversation, certainly in the UK, can help you visualise what that money’s doing at any given point.
It’s not locked away. It’s actually invested in some of the world’s biggest companies or should be invested in some of the world’s biggest companies. I think that that can give you a sense of tangibility, even if it’s going to be a long time before you ultimately access it. Then I think the third thing that we really need to prepare for is probably longer working lives. That’s just how these things are going to go because the State Pension is unlikely to keep growing in the way that it’s been growing.
PHILIPPA: You’ll get it later and later?
ROMI: You’ll get it later and later. We’re healthier, and therefore, it’s quite likely that we’re going to end up working longer. Perhaps preparing yourself for that 100-year life is the direction of travel.
PHILIPPA: We made a podcast about that - it was episode 26. It was really interesting because that 100-year life isn’t just the way we work now for longer. I think the conversation we had, it was really interesting, was how that life would look when there might be periods when you’re not working. Maybe you’re raising kids, but maybe it’s more complicated than that. You’re educating yourself into a different line of work or whatever it might be. The continuous contributing into a pension, I do wonder how easy that’ll be for everyone and whether there’ll need to be products where it’s not so much about that, that there need to be times when you can take quite extended pension holidays, maybe potentially. I don’t know. What do you think?
ROMI: I think it’s now possible to take those pretty extended pension holidays. I think the problem is that if you’re not paying in, the government’s not paying in, the employer’s not paying in - and so you’ll then need to look for ways to make up for the holiday. It’s important if you eventually want to retire.
Pension Freedoms reforms
SAM: I hope we all want to retire. What I was just going to say, maybe it’s a point we should have made earlier, but the other big change being the ‘Pension Freedoms reforms’. Which I think basically summarises the problem we have. On the one hand, we need people to actually engage quite a lot. But we also tell them, “don’t engage them, your employees sorting it out”, and also, “don’t worry about the money. It’s growing in the background, and you don’t want to obsess about it too much”. But you’ve got these conflicting reforms that mean, “don’t engage, don’t engage, just let it build up”. Then suddenly it’s like, “right, you need to turn that into an income now”. Suddenly, you’ve got to learn about all these terms when you’re 55 (rising to 57 in 2028).
PHILIPPA: Yeah, that’s a huge issue, isn’t it? They’re understanding all of a sudden there’s this money: what should you do with it?
SAM: Exactly, yeah. How does that need to be done? I think you have to suddenly have a gear shift, that no one’s really prepared you for suddenly potentially managing your own money and starting to invest it. A company might say, “well, we don’t do the bit after you’re retired, so here’s the money. Off you go. You can turn it into an income“.
PHILIPPA: Yeah. Is that an opportunity for the industry, Romi, to do more for people at that stage?
ROMI: Yes. I firmly believe that you should be engaging early on because I don’t think that mental shift can just occur at the age of 55. If you’ve never engaged and you’ve lost the opportunity to learn about your pension as you go along, coming in at 55 and suddenly being faced with a lot of daunting decisions.
PHILIPPA: Very significant.
ROMI: Significant, daunting decisions. I think that opens up a lot of scope for people to turn in the wrong direction. The best thing is definitely to look at it early on. I think the pensions industry tells you, “don’t worry about it” because inertia is in their commercial interest. I think, do look at it, do ask what it’s invested in, and do decide if that’s right for you - those are actually important concepts. If someone told you, “don’t look at your bank account, we’ve got it sorted out”. Would you listen to that?
PHILIPPA: You’d be dubious.
Where your money is, exactly
ROMI: We’ve worked very hard to try and make things simpler. For us, I think, even for us, it still feels like the work isn’t done. I think the next focus is really about where your money is, exactly. I think this is becoming a greater topic of national conversation in general. There’s so much talk about the government directing your pension investments. Until we pay attention to where our money is today, we won’t really be able to say whether we think that’s a good idea or not. At the moment, your money’s probably invested in some of the world’s biggest companies. I’d love for everyone to be able to say, “my pension’s in Amazon, it’s in Glaxo, it’s in Tesla, it’s in NVIDIA, it’s in Marks & Spencer”. It’s in companies that we recognise. I think really the next phase is to understand: ‘what is this pension?’ Yes, it’s my pot for the future, but what is it right now? I think getting there combined with the technology is what’s actually going to take us to a place where people feel ownership.
SAM: I think it’s an interesting point because I think personally, I actually find it quite stressful to think about the companies.
PHILIPPA: Oh, do you?
SAM: Yeah, because then you start thinking, I’ve got to follow the news on... “Oh, NVIDIA has missed its earnings report. What does that mean?” I feel like most people now invest through trackers, which just buy everything, buy the market. Yes, you’re investing in those companies, but I’ve started to actually slightly disengage from the individual stocks because I feel like I’m not equipped to know what things mean. I’m not like a day trader. In a way, I quite like the idea that there’s an algorithm somewhere that’s buying and selling things on my behalf. I do understand compound interest, but I don’t understand how individual companies work across the world. It’s slightly overwhelming to me.
ROMI: No. If you look under the hood of most of these products, you’ll find that they’re generally invested in very similar kinds of investments, very similar types of companies. But to your point, at the same time, I don’t know if you can just take for granted that everything is fine under the hood. It’s probably fine, but I think you probably want to pay a little bit of attention to that and make sure that you know what it’s actually in, because there are some government proposals out there at the moment that are suggesting that the government should direct some of your money. Obviously, we’ll never do that at PensionBee. But I think if most people understood that, I do think they’d pay more attention to what the pension is doing right now.
DAMIEN: That point, I have to say, I’m trying to go through a phase of engaging my eldest daughter, who’s 14, into investing. It’s all linked to pensions and everything. Because as somebody who’s called a ‘Money Expert’, I seem to be good at teaching the rest of the UK - but I’m not really teaching my children! We suddenly thought about this idea of, “well, how do I do it?” One way we’re starting to try and engage with it is, it’s a fun exercise - and I’ll let you guys know how it gets on - is by saying to them, all those companies that Romi mentioned, funnily enough, saying to them, you go out and pick a dozen companies out there that you know and then we’ll see what happens to their share price.
Even if now you can do small investments these days, to engage them with the idea to start to understand why shares go up and down and why the companies don’t do so well. It’s not about making money, it’s about educating. She likes the idea and I think she’s going to engage with it, but we’ll see how it pans out. It could be something she grows very bored of very quickly, and it’s just me being an enthusiastic dad. When you get to Christmas and you give them a toy or something and you say, “look at that!” and it’s just you playing with it, and they’ve walked off. I’ve got a feeling we could go down that route!
PHILIPPA: Got to say, it doesn’t sound like the most exciting present ever.
Understanding market ups and downs
DAMIEN: I think it’s important to have an idea where your money’s invested because whether it’s a pension or even something like an ISA. If people are invested in trackers, if the market crashes, what tends to happen is people panic and then they might sell out. And by understanding what’s really going on, what’s driving the ups and downs, it actually encourages people to stay in the long term and invest in the long term because they’re understanding this is the natural flow. It’s a bit like you’re trying to surf and getting wet. You never realise that’s what’s going to happen. You’re going to fall off the board every now and then. It’s what’s going on in your pension is the natural cycle.
PHILIPPA: Yeah. I mean, as you said, that’s the other side of handheld technology for knowing where your pension is right now this minute, isn’t it? I mean, Romi, you must see this. People, if they want to, they can look every day on the app.
ROMI: Some people look more than once a day, even though the balance only updates on a daily basis.
PHILIPPA: Is that a good thing? Because obviously -
ROMI: - I think it’s alright.
PHILIPPA: You do?
ROMI: It’s alright. I do. I truly believe that if you give people enough time to learn these things that, Damien, you’re speaking about, that markets do go up and down, your pension will go up and down. It’s supposed to go down because that’s a good investment opportunity, and it’s supposed to go up as well because that’s what long-term growth looks like. We’ve had a couple of market downturns since PensionBee came into the financial landscape. I remember all of them really well.
PHILIPPA: Yeah, I’ll bet.
ROMI: I remember 2018. I remember 2022. 2022 was substantially more severe than 2018. But what we did see is that people who had been with us, customers who had been with us in 2018, had seen a dip, had seen a recovery. They looked at 2022 differently to the customers that had recently joined us because they’d always been kept in the dark by their pension provider before us.
PHILIPPA: Ah ha!
ROMI: So, they hadn’t had the benefit of that transparency over the past 10 years. But now we know that when the next downturn eventually does come, and it’ll come because that’s how markets work. We feel very confident that the customers who’ve been with us, who’ve experienced what a pension is supposed to do, go up and down, we feel very confident that those customers might see it as an investment opportunity, which is what a market downturn really is. It’s a great time to put money into your pension.
How does the UK compare internationally?
PHILIPPA: We need to be wrapping this up, really. But I do want to ask you, Romi, because you’ve expanded the company into the US this year. Do they do things differently there? Is there stuff we can learn from there?
ROMI: Well, I think that there’s a lot of stuff they can learn from the UK, actually.
PHILIPPA: OK.
ROMI: One of the things that we found in the US is that the level of coverage that you as a worker get is substantially inferior to what we have in the UK. If you work part-time, if you leave a company within a couple of years - which, as we’ve spoken about, many people do. You might get nothing in the pension. For us in the UK, Auto-Enrolment changed that. There’s this opportunity, I think, to change what I think is an enormous financial system and works well for many people. There’s an opportunity to change it and make it work better for everybody. That’s actually really exciting because that’s something we’ve learned in the UK. We’ve learned the power of how much better the system can be for everybody and so I’m quite excited to take that to the US.
PHILIPPA: I think we do need to wrap this up. There’s so much more I’d like to ask you all about, but I’m going to do that festive thing. I’m going to ask you about New Year’s resolutions because we’re recording this right at the end of 2024. So come on, around the table, what’s it going to be? It should be financial, given this is a money podcast, but it doesn’t have to be.
SAM: My financial New Year’s resolution is to start saving in January for Christmas.
PHILIPPA: For next Christmas?
SAM: For next Christmas, because I think every year, I don’t have anything set aside for it, and then I’m paying it back. But I think I’m going to do one of those challenges where you save a decreasing amount every day for a year.
PHILIPPA: OK.
SAM: So, you start with, I think it’s £5 a day on day one, then £4, £3, do it until it’s like 1p or something right at the end. Then you’ve got a little pot to buy the presents with rather than what I do, which is put it on the credit card.
PHILIPPA: Romi?
ROMI: My financial resolution is actually to read more books because I think that the world really is changing, and I want to have a reset around thinking and how we think about the financial system, what the financial system can do more generally. There have been a number of publications recently that I’ve scanned the titles and thought, “you know what? I think I might need to read a couple of chapters of this book.”
PHILIPPA: Have you got a particular one in mind?
ROMI: Yeah, I’m thinking of one that I can’t recall the name of right now, but it’s definitely sitting on my desk somewhere. I’m pretty sure it’s called ‘Billions’ or ‘Trillions‘. I can’t remember which one it is.
PHILIPPA: I think that’s a really interesting idea, the future-gazing, what’s the world going to look like and how does finance and pensions need to respond? Come on, Damien, what have you got?
DAMIEN: Well, I think Romi has inspired me to actually commit and complete the challenge with my daughter to try and teach her about investing. I think that I’ve got to. I think that’s my resolution for the new year.
PHILIPPA: It’s a resolution for all parents, I think. Thank you very much indeed, everyone. Really interesting discussion. Thanks to everyone listening for being with us this year. We’ve loved covering the money and pension stories that we know you wanted to know more about.
We’ll be back with more tips about managing your money and saving for the future in our fourth series next year. Look out for January, the first episode of the year. If you missed any episodes - no problem. You can go back and listen on your favourite podcast app, you can listen on YouTube, or indeed, the PensionBee app, too. If you enjoyed this one, we would love it if you would rate and review us. We know you’re busy, and your feedback does mean a lot to us.
The final reminder for 2024 is that anything discussed in this podcast shouldn’t be regarded as financial or legal advice. When investing, your capital’s at risk. Enjoy the holiday. We’ll see you in 2025.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
