Rob Gardner is a serial entrepreneur, campaigner, author and father of two girls on a mission to demystify financial planning for everyone. He believes everyone has the chance of a financially secure future, so long as the seeds are sown early on. Gardner is a pivotal player in the financial future of thousands; from the pensions of today’s adults and the education of today’s youth through to campaigning for better financial education for the children of tomorrow. We sat down with Rob Gardner to get the lowdown on pensions and the importance of saving.
What is a pension?
Imagine taking a twenty-five to thirty year ‘gap year’ when you retire. A pension is your lifetime’s savings that you will live off when you stop work. The Government will give you a state pension when you retire (currently around £150 per week). However, this is a basic level of income to support you in retirement.
(Note for most students – the age of retirement might be closer to 80 years in 2077! Although the good news is your life expectancy will be approaching 100 years.)
When you start work after university, the company you work for will offer you a workplace pension. This is a long-term tax-efficient saving plan to bolster your state pension. Your company will contribute money, you will contribute money and the government will give you free money in the form of tax relief. This is then invested on your behalf, typically in stocks and shares of the biggest companies in the world (Amazon, Apple, Disney, Facebook, Google, Netflix, Samsung, Tesla, Unilever etc).
Over time your regular savings combined with your investment returns will give you a pension pot which you can then use to live off when you retire. On top of this you can open a personal pension, where you contribute and save directly yourself. Did you know you could have had one these from birth? If you can convince your parents to open one for you whilst you are at still at university, for every £1000 you invest you get £250 for free from the government (up to a maximum of £3,600 a year). Invested wisely over 40 years that £1,250 could be worth over £100,000.
What age should people start to save for their pension?
As soon as possible. The secret is to make your money work for you and earn more money from it. This is known as compound interest. The greater the time you invest for, the greater the compound impact. If you invest wisely you can expect to double your money in 10 years, quadruple your money in 20 years and make 10x your money in 40 years. Warren Buffett and the wealthiest people in the world understand this is the key to prosperity and wealth creation. If you start early enough then you too can create the wealth you need to fund the ultimate gap year after your working life.
Do you only get back what you put into your pension or does it work like an investment?
Your pension is like an investment – it isn’t guaranteed. Investing can be like a roller coaster, but if you invest for the long-term and benefit from the free money (from your company and tax relief from the government) then over the long term you should expect to materially grow the amount of money you put in. Currently you can’t access your money until you are 55 which means you have at least 30 years to invest and grow your pension.
Why should young people care about starting to save early for their pension?
There’s a good chance that you may live to 100. That’s more 20 years longer than your parents’ generation and nearly 40 years more than that of your grandparents. That’s awesome! But it means that if you want a comfortable lifestyle when you retire you need to save and invest into your pension. The sooner you start saving, the more your money works for you and the more you benefit from the extraordinary impact of compound interest.
What happens to your pension after you die?
It’s odd to think about this when you are still studying at university, but your pension is considered part of your personal wealth, and so you can pass it onto your next of kin or as you set out in your will.
Is there a minimum/maximum pension you can have?
If you choose to opt out of saving in your company pension or a personal pension, then the minimum pension is the state pension. There isn’t a maximum pension, but the government does set a maximum amount of tax relief you can get a year, known as your annual allowance. Once your pension pot is above £1 million, the government will tax you on your pension. Below that it’s tax free.
What are some simple tips people can use to proactively save for their future?
- The most important tip is to understand that having a pension is really important. It may sound boring now but your future self will thank you for proactively saving for your future.
- Starting as soon as possible has an extraordinary impact on living the life you want to live when you retire. As I mentioned earlier, you can start right now.
- When you start work make sure you take advantage of your company putting money into your pension, in addition to the tax relief from the government.
- Some large companies may give you extra contributions to match yours – free money! Make sure you take advantage of this.
- As a rule of thumb if you want £500 a week in retirement then you need to have a pension that’s x1,000 that amount i.e. £500,000. The good news is if you start in your twenties, you only need to save £150k over your life as investment returns will earn you the additional £350k. If you wait until you are 50 you may have to save closer to half the amount because you don’t have enough time to earn the compound interest I mentioned before.
- In order to secure a comfortable living when you retire, you need to be saving close to 15% a year of what you earn. However, if your company contributes 5% and offers matching of your savings then you personally only have to save 5% of your salary.
- When you start job hunting after university, make sure you ask about the company pension.
If there was one piece of advice you could give about saving, what would it be?
Saving is a habit. It is the foundation of your personal financial wellbeing. The more you do it, the easier it becomes and the greater your prosperity and wealth.