Tim Campbell: Why it’s time to actually understand your pension properly

When I started work, I saw my payslip as a crime scene. Who are these people, and why are they taking my money? They all had three letters to their names, I thought. Nat Ins – national insurance – was a sly one, Inc Tax (income tax) was the worst. Net Pay was just downright depressing. But pension contribution – Pen Con, as he was aptly named – was the smartest of them all, dressed up as a Robin Hood-type character, taking – but for your benefit. Shorts My first proper job was with London Underground, latterly working from the head office at St James’s Park. Unbeknown to me, I was put into a defined benefit pension scheme, which means the amount you get in retirement is decided by your salary and years of service, and the employer, rather than you, carries the risk of the markets going wrong. It’s a far more generous arrangement than most people get today, but it was down to pure luck on my part – it’s not an option I chose; it was the default. We never talked about it. And the trouble with being rescued by a default option is that you learn nothing. I didn’t properly understand pensions until decades later, by which time I’d been through jobs where there were choices and I’d made bad ones, cutting my contributions to the minimum because I thought the number at the bottom of the payslip today mattered more than a number in the far-off future. I see the same thing now in the young people I work with and employ. The pension is the least urgent item on the list at precisely the age when it does the most work. But in some ways, young people are shielded from having to think about pensions because of auto-enrolment. Under this policy, workers aged 22 and over, earning at least £10,000 a year, are automatically signed up to their workplace pension scheme. Employers must pay at least 3 per cent of your salary into a pension, and you must contribute 5 per cent. But while plenty of employers put in a good deal more, the spread is vast. According to the Institute for Fiscal Studies, 28 per cent of private sector staff only get the minimum. That rises to 52 per cent in hospitality and falls to just 5 per cent in finance and insurance. Most people have probably never asked which deal they are on – or tried to see if they can negotiate a better one with their employer. So instead of passively going for the default option with your pension, is it time for you to start taking some active decisions and start properly talking about your pension? Ask your employer: “Will you match my contributions?” Question what you may have left behind at old jobs through the Government’s free Pension Tracing Service. And if you want it explained by someone with nothing to sell you, MoneyHelper is a helpful free resource. My daughter is in the early stages of her career in the City and is far better informed than I was at the same age. She will, in all likelihood, retire with more than her father, whose first employer made a great decision for him but taught him nothing at all.