Dear Brits, please save more

If you're listening to this here podcast, then you're probably either a finance whiz or a

finance wannabe at the very least your market's curious. Welcome to the tribe. But in the UK,

at least an alarming number of people have a seriously weak grip on their money. And in particular,

a lot of people have no pension at all, just none. As a card carrying finance person, this makes my

toes feel funny. It's a potential cliff edge for people and you do have to wonder what it all

means for the future of our economy. So today on the show, scary stats, pension pots and what to do

about it. This is Unhedge to the markets and finance podcast from the Financial Times. I'm Katie

Martin, a market's columnist, locked in the basement of FT Towers and today unusually, I'm joined

in the studio by not one, but two pensions pointy heads. My very lovely colleague, Claire Barrett,

Claire, say hello. Hello, I'm not as pointy as you think. You're pointy enough, but also Gavin Lewis

from BlackRock. Thank you for having me. How dare you call me pointy. Look, it's a pointy head

is a term phrase. So look, this podcast doesn't normally talk about personal finance, but it's a big

financial issue for individuals. It's a big financial issue for the country. And in the UK,

we have this thing now called auto enrollment. So you work for a company and unless you say otherwise,

a little bit of money is taken out of your pay before tax and popped into a pension. Fine. So

a lot of people think that nationally, pensions are just sort of sorted. I mean, Claire on a scale

of one to 10. How wrong is that idea of sortedness? Well, I mean, I would say five because auto enrollment

seriously is the best thing that has happened to pensions, you know, in the last 15 years,

at least it's getting people starting to save into a pension from the get go. I mean, when I

started my first job as a journalist, I would have had to have opted in to the workplace pension

scheme. And for various reasons, including the fact that I didn't think I'd be there for more than

two years, I just said no. And I worked out a while ago that had I said yes, and that money was

invested in a S&P 500 track of fund, it would probably be worth about 70,000 pounds by now,

which I could really have done with because as a woman, my pensions chances are less than a man,

statistically speaking. So women need a lot more help. Also enrollment has shoved younger people

into pension saving sooner. It's still missed out a lot of women who don't earn enough or work part

time or who are self employed. That's a very big black spot in this country for pensions. But we

all need to be doing more with what we've got understanding it, trying to save a bit more. And for

those who are earning more, it can be really valuable in terms of tax breaks. And I write a lot about

that in my FTC. Yeah. So Gavin, you and I met like a whiner nibbles thing. And I was like, oh,

a pensions point he had. You know, like a lot of people are just sort of staring into the

abyss, right? And I remember us having a chat about for a lot of people how bad is this? And your

answer was, yeah, no, it's pretty bad. Look, that's right. So look, I mean, I think we have to

separate two issues. So previously before all to enrollment, we had a participation problem,

which basically said that there weren't enough people actually participating or contributing to

pension. And I think auto enrollment has been a great success. So I know that we

did that come in 2012, 2012. So look, it's okay. I'm a pointy head for enough. I want to correct

it clear. I want to suggest it. So I felt it. So and it's been a great success because before that,

pre-automate, the statistics was something like four out of ten people were participating in a

private sector workplace pension. It's now nine out ten. Right. So that needs to be seen as a

success. The challenge now I think is slightly different than adequacy problem, which is essentially

what you experienced in clear. And I'm the same. I mean, I'm of Gen X and you can take your draw

off the floor. I know I believe I am. I know. I know. I know. It looks about 25. And it's similar to

so I started working and I had to opt into a stakeholder pension. And you're like, no, I need my

beer money. I need my rent money. I haven't got exactly. Or I wanted to buy a house. Exactly.

So I needed to deposit. Exactly. But so auto enrollment, absolutely no two ways about it. It's a fantastic

thing. But there was a report out from the pensions commission in May this year. These are the scary

stats that I told you were going to come. So the pensions commission, which is mandated by the UK

government said 45% of working-age adults in the UK, so that's about 18 million people are not

saving into a pension at all. Only 4% of fully self-employed people are saving for retirement,

even lower for younger people. 15 million people are under savings. That's that adequacy point

that you were talking about Gavin and tragically from our point of view, this affects particularly

heavily Gen X, the finest generation. Low and middle income earners and women are the most

exposed to this problem. And the report goes on and on and you just read it and you think, oh my

Lord, so set the scene right. If you have saved nothing, what is going to happen when you retire?

What are you going to live on? So look, if you've saved nothing in either

auto enrolled or opt-in pension system, but you have been contributing via national insurance,

you will have a state pension. So that's a good thing. So our pension system actually is robust in

the sense that it enables people to ensure they're not living in poverty when they retire.

Although £12,000 a year. It's not going to be very much. It's not. And this is the problem. So I think a

lot of people think, well, actually it's fine because I've got the state pension and it isn't

nearly, nearly enough. You might stave off poverty for some period of time, but pensions don't exist

in the vacuum. So inflation, cost of living, how people function without contributing to an extra

pension above the state pension is a real, real, real issue. Yeah. Yeah. So I think, you know,

everyone knows someone who's in this situation, right? Whether they're a member of your family,

or whether they're friends or neighbours or whatever. And they're just like, it's fine. My house is my

pension, or it's fine at some point I will inherit something. Claire, does that make you feel a little

bit sick? It makes me feel a little bit sick. Well, it would make me worry for them because there's

always something that you can do. If they were totally fingers in the years and la, la, la, then yes,

I would have words. But I think pensions nowadays, part of the reason it's so complicated is because

people hear the word pension and they think, it's hard, it's hard to understand. And it feels like

too big a problem to solve. And if you're in your 40s or 50s, you might think, well, I've left it

too late. I'm never going to have anything. But actually, if you start saving in your 50s and your

employer, bung some money in, if they've got a good scheme and you get the tax relief, then you

know, you could build out, it's better than nothing to start something now. But most people, I think,

are going to take a bit of a buffet approach to how they fund their retirement. So yeah,

there might be some inheritance. There might be housing equity. But the obvious one is that you work

for longer. But then it's not a given that you'll be able to get a job doing what you want to do

at the salary level that you need. Like Gavin, how is this a UK thing? Are we uniquely bad at this as

a country? Well, look, I think the UK pension system, there are a lot of benefits to it. And we

talked about the state pension, like the majority of countries around the world with closed our private

sector DB pensions and these are the old, old, fine benefits. Yes, thank you for picking me up on

the, on the acronym, old defined benefit pension scheme to almost gave you a guarantee of an income

when you retire. We've now moved to this defined contribution pension scheme with the old

defined benefit system, like the company your employer was on the hook, with defined contribution

system, the individual was on the hook. So there isn't really any any safety net. And your money

could run out. It could. And it's also subject to, obviously, things we talked about, for example,

inflation or whatever you're invested in actually reducing at the point we retire. So these are real

risks. And look, some other countries are further ahead. And like the UK's often compared to

Australia. So their defined contribution pension system is probably, I would say, maybe 10 years

advanced from where we are. So you can almost look at the Australia model and predict where the UK

is going to go. For example, in Northern Roman, we contribute on average 8% in Australia. That's

much higher. It's around 12%. In the report that you mentioned the pensions commission report,

one suggestion was to actually contribute more. So moving from 8% to 12%. The other interesting

stacks we talked about demographics in age groups, you were only eligible for the UK

auto enrollment pension when you were 22 years old. There's a suggestion that that moves to 18

because then you get, obviously, three years extra pension contributions. But the other thing is

what this misses is people who are not necessarily in full-time employment. So there are major gaps,

like women's and there's a gender pension gap as a black person, there was an ethnicity,

pension gap. We also have people that work in the gig economy, part-time workers.

Hatch work workers, he have three different part-time jobs. Don't get a pension with any of them.

Absolutely. So a lot of the gaps that you quoted in the pensions commission, that's where it resides.

But also interestingly, middle income earners caught in this trap of actually earning a decent

amount of money, but having to compete with other forces, like housing, child care,

child care, elderly care. So it isn't a given that actually just because you are earning slightly more,

that actually going to be better off, it's about the contribution and the replacement rate,

which is essentially what level do I need to clear to live comfortably?

So what's the best thing to do? I know people who are putting money into an account for a pension

for their toddlers. That's very popular. That's great. I mean, it never would have occurred to me,

but this is good parenting. Absolutely. This is superior parenting to my parenting. So long as you're

not prioritising your child's pension over your own, you've got to care for yourself enough to put

this money to one side for future you, but people get intimidated and scared by pensions, whereas

what they need to do is understand the effect. If they do give up some of that hard-earn cash,

they've got the benefit of tax relief, which so few people understand. So understanding the

system more, understanding how you can get those top-ups, finding out if your employer will pay

in more for you, if you pay in more, and certainly with bigger employers, with better financed

employers, dare I say, the chances are that they will do that, ask your partner to ask her

employer too, because you could fund a top-up for her. There's free money on the table that she could

get. So there's lots of things that people could do, especially if couples work together, but you've

got to be proactive. Nobody's going to come along and hand this to you. That's the thing. No one's

going to do it for you. But so, again, I'm going to assume that a lot of people who listen to this

podcast have got this at least partially sorted. They've got their auto enrollment. They think

about money on some level otherwise they wouldn't be listening to a podcast from the FT. But I guess

what's the best thing for them to do? Is it just to pay in as much as you can, as early as you can,

as consistently as you can? And also, is there a role for the humble unhed listener just to have

a tap on the shoulder to their brother or sister and say, you have got a pension though, haven't you

like a sort of nudge that you can give to people around you to sort of say, this is a thing that maybe

you should look into, isn't it? So is that the rule, Gavin, for you, just like as much as you can,

as early as you can, and just encourage people to have a look and think about it?

That's definitely part of the equation. So there were so many levers that one can pull to get a

better outcome. The amount that you put in is a lever. Doing it early is absolutely lever because

you get what's called compounding effect because that one pound returns into two pounds suddenly,

you've got two pound invested, which then increases you on year one hopes. And I think culturally,

we don't talk about money in the UK, which is one of the reasons why we all say this. If you want

to talk about comparisons in the US, you know, you held down your, you know, cab, you tell them that

you work in financial services and then they start banging on about there for a while. Okay,

give us some stock. Yeah, that's the one before one K and I've got this stock and I've got that stock.

Like culturally, we don't do that. And I think that is a real problem. So the more that,

obviously the unhedged listeners can co-opt others into talking about this savings,

like culture, I think is excellent. I also think like we as industry, we need to help as well.

Certainly how much you contribute is a factor, but also what it returns, so what it actually earns,

what is it invested in? You know, an extra few percent in the investment return can equate to

multiples in the size of a pension's part. Yeah, it's all, isn't it, that, you know, London is

home to a world-class financial services industry, one of the biggest finance hubs in the world, but

the average Brit doesn't know a cash account from an equity agent. Well, a lot of people, and

their surveys to back this up, think that their pension is just like a cash savings account. They

don't even realise that it's invested. They don't realise that they actually have choice

in where it's invested. And then you've got the multiple pot problem because for every job,

you get another pension. So you've got people with different little pots of money sitting around,

and they could be invested in very plain vanilla, default funds, but, you know, if you're in your

20s or your 30s, this is not investment advice, but probably a good idea to have it in

equities, high risk, you can afford to take, equity risk in a stock market, rather than have it in

bonds and cash and something that's just a one-size-fits-all, which is what your money will be dumped into,

otherwise, because you're going to be alive for a long time and you probably won't need to access

that money for like 30 or 40 years, so that will give you the best chance of growing and beating

inflation. But if you don't know, it's an investment, or you can't track it down, Grethle is a free

website that you can go on in the UK as in Hansel and Grethle. You can use it to track down

pensions. I helped a friend of mine to use it to track down a pension that she didn't know she had,

she's 61, and she found one that had 16,000 pounds in it, so this is something that you can do.

But like, what's at stake for the UK economy if we don't sort this out? Because the country,

you know, like all of us, is getting older. So the share of the UK population that's over 65

today is 19%, 1,9. By 2075, it'll be 28%. We're an aging population. We're staring down a barrel

of a large part of that population having a pretty tiny income unless they take some sort of

remedial action kind of now, or yesterday, ideally. Gavin, give me a message of hope,

like how does this work out well for the UK? Yeah, I, in this, you know, I mean, it's strange because

it's only in pensions that longevity is a problem, like in India. The good news is you've been living

longer. The bad news is for talking about pensions, so that's a bad thing because basically means

that that pension provision needs to just last the entirety of one's lifetime. And look, and I think

it is a potential, like, significant problem because if people fall out of the system,

will require care, then the state needs to pick that up. And that means that the working population

is going to be supporting a retiree base that is only increasing. So we're going to need the robot

to work really hard to the real problem. But then the other thing is that if that's the case,

we therefore need to almost reimagine what one's working life, realism, reimagine, retirement,

a, because people do need to save more and country, but also probably continue working and

probably continue earning for longer than they would have anticipated. Now, that could be seen

as a bad thing because it means that people are going to have to stay employed longer and people

do need to be employed. But also means that you can actually think slightly differently about your

career. And in terms of UK productivity, one of the best attributes that we do have is our population

and we're just not making use of enough of them. Yeah. One thing that I remember like

grandparents retiring when they were like, I don't know, certainly 60. They had a house that they

owned outright that they bought back in the day. The top of the tape knee. And the state pension was

perfectly adequate. It wasn't like they were loaded, but they were like fine. And they got loads

of free stuff. And they gave me sweets and jelly and toys. And I guess on some level, we all think

we're going to be like our own grandparents. And it's like, guys, this is just like not a thing.

That whole thing is done. It's over. You've got to sort of shape up and look after yourself. So

Claire top tip, what's your top tip? Find your pensions, track them down, put them all in one

place if you want to. But just sort of be aware of what you've got. And start thinking about

retirement, which I say in scare quotes, because it's going to be very different for us

a long way out. Like 45. Yes, this is something you need to be thinking of. Even things like

going through your budget and being hyper aware of what you're spending. My husband wants to retire

at the moment. He's a bit older than me. But I want to have spreadsheet data to show, well, okay,

if you retire and you've got pensioning, what happens if you're married to someone from the

UK? We can afford it. You're not going to overspend. But unless you've got this laser focus

on your outgoing, you're not going to know what the number is that you need to hit for retirement.

And if you can sort of put some numbers around things, maybe they become slightly more achievable

and slightly less hopeless. Yeah, Gavin top tip. Honestly, I think a lot of people kind of

stick their head in the sand. Yeah. It's two difficult subjects. Don't do that. And I think at

the back of their minds, they kind of know that, oh, this is a problem, but I'll just think about

I think you have to cross the net all. I think you have to engage with it and really get to grips with

at least understand where you want. And then want to start making some decisions.

Unheash listeners, your mission is to spread the word in the meantime. We're going to be back in

just one sec with Long Short.

Okey-Doke, it is time for Long Short, that part of the show where we go long, a thing we love,

or short a thing we hate. Gavin, what are you saying?

Okay, I really am a pointy head. So I'm going to go long, long jeopardy.

Think in the pension space, it's seen as such a problem. But I actually think it's an opportunity.

If one can make sure their health is in order, I think it's an opportunity to extract more

from our population. I think it's an opportunity for individuals to work and contribute

over a much longer cycle to society. I really think it helps stave off this potential problem

that we have around care and the impact on UK products. Do we all need to be like those weirdo

American billionaires who try and make them incrementally younger over time, live forever?

No, I just think you can do that by just being more productive. The longer you stay engaged,

the longer you work, the more meaning one's life has. Your social circle has changed,

and stay intact. I think that's a good thing.

I reckon behind the scenes, Gavin is trucking all of those, like,

timeless, you're going for it. I know, again, Jelix, heart of a league. So heart of a league. Thank you.

Claire, what are you saying? What are you long, what are you short?

I am going short on the new Prime Minister's social media feed. I'm talking about Andy Burnham.

I thought you liked his social media feed. Well, I did at first because I thought finally we have

a politician who can connect with voters emotionally and who understands the importance of social media

as an educational tool because it's massive with personal finance learning about your pensions,

etc. If you want to follow me on Instagram, I'm at Claire B. By the way, she said, he has just,

I just feel like we've reached a tipping point this week. The amount of stuff that he's got on his

social media about how he loves pork scratchings, what his favourite order is in Gregg's,

him playing the guitar, showing us around his office in a record that Jolene Maaf and the

Smiths gave him. It's kind of starting to grate a bit because there's nothing on there. There's no

content, for example, about the bond market. And there's nothing about cutting government spending.

And frankly, I don't care if the man shops in Gales or Gregg's, I want to hear something about what

he's doing to bring down government spending, bring down the welfare bill. What a turnaround from Claire Barrett.

I swear you were a fan of his social media like a few days ago. Well, I'll be liking it less from now on.

Fair enough. Fair enough. Get real. I am not necessarily long gold. But I am long all of the

sudden excitement about gold. Like people are talking about it as a fix for all of the unorthodox

policy that's coming out of the US. But also the Netherlands has brought a load of its gold.

Did you see the stories brought like 86 tons of the stuff back from North America over to London

because of geopolitical risks and uncertainty. And you think what do the Dutch know?

Where can I buy more of this stuff? So everyone is excited about gold. And so I am excited for them.

So yeah, it's been a wild foray into the pension's world, into personal finance, but on hedge,

Gavin Claire. Thank you for being such good sports and chatting this all through with us.

Listeners, we will be back in your ears on Tuesday in the meantime, spread the word and then

I'll listen up then.