People earning £40k know nothing about money

by Harvey Jones on 30 January 2012  |  28 comments
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Despite earning a salary far above the national average, many workers on £40,000 are clueless about whether they even have a pension.

If you knew somebody was earning £40,000 a year, you might assume they were reasonably bright. After all, it’s a decent salary, more than one-and-a-half times the national average.

At the very least, you might expect them to know a little bit about money.

But no.

Say that person earned £100,000 a year. Again, you would think they knew how to manage their money. Yet many haven’t even grasped the basics.

Like, whether they have a pension.

Money can’t buy you brains

Amazingly, one in four Britons earning up to £40,000 a year are “unsure” if they have a pension, according to a new study from management consultants A. T. Kearney.

Unsure!?!

You would think somebody earning a six-figure salary would be right on top of this question, but nearly three out of 10 people on £100,000 don’t know if they’re paying into a pension.

Talk about more money than sense.

Women were particularly clueless. Half were unsure if they had any pension savings at all.

If people who can actually afford to pay into a pension don’t know what they’re doing, what chance have the rest of us got? 

Hammer House of Pensions

I hate writing about pensions. Not because they’re boring, as everybody claims: the great UK pensions meltdown is as grimly fascinating as any horror story.

What I hate is telling people they should save into a pension when many simply can’t afford to do so. They need every penny right here, right now, they can’t set it aside for some distant date.

But as this new survey shows, that’s not the only reason people aren’t saving into a pension. Not by a long shot. Plenty of people can afford to to set up a pension, but they don’t.

How mad is that? 

Um, what’s a pension?

If you can afford to save into a pension, and don’t, one day you will regret it. That £40,000 or £100,000 salary isn’t going to last forever. At some point, you will quit working, and then - Newsflash! - the money will stop. Yes, it really will. And at that point, what will you live on?

That’s right, one of those pension thingies. But only if you have actually saved in one.

If you haven’t, your above average income could become distinctly below average. I accept that £40,000 a year isn’t riches these days, especially if you have kids and a mortgage. But it’s a lot more comfortable than £6,000 a year, which is roughly what you will get with the State Pension.

Without a clue

If you think you might have a workplace pension, ask human resources or your line manager.They should know where your money is going, even if you don’t.

If you need help tracking down an old company pension, try the Pension Tracing Service.

Found it!

If you find that you have unwittingly paid into a pension - well done! Now dig out your latest annual pension statement. This should set out exactly how much you have in your pot, and how much income that is likely to buy you, in today’s terms, when you retire.

These figures are worth knowing, even if you do earn £40,000 or £100,000 a year, because they can help you work out how much you need to save to enjoy a comfortable retirement.

You can’t be sure of the State Pension either

If you’re not saving for a pension, you’re not alone. The Government hasn’t been saving either. It pays for today’s State Pensions out of current tax revenues, rather than a separate savings kitty.

And that’s really worrying. Given the financial mess we’re in, the state could struggle to fund future pensions, plunging millions into poverty, even people who are earning good money now.

Now you don’t want that to happen to you, do you?

A taxing question

If you can’t save for a pension on an income of £40,000 or £100,000, who do you think should be doing it for you? Taxpayers? That’s hardly fair, given that the average worker earns just £26,244 a year, a fair bit less than you.

They can’t afford it, you can. So get saving.

You’ll have heard the phrase: If you’re so clever, why ain’t you rich? Well, it works the other way. If you’re so (comparatively) rich, you really should be clever enough to save into a pension.

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