🏛️Your pension: probably your biggest investment

Almost everywhere, the same three layers

The names differ by country, the structure barely does. At the bottom sits a state floor, funded from taxes or contributions, and it is deliberately modest: it covers rent and groceries and not much else. Above that sits whatever you build through work, and for most employees that is by far the largest amount.

And above that comes everything you arrange yourself. Anyone who only knows the first layer knows the smallest piece. So the first task in this lesson isn't arithmetic, it's looking: which of these three layers do I have, and how big is each one?

Go and find your own numbers

Almost every country has a central overview, an annual letter from your pension provider, or both. Look up what's there and watch three things. One: what you've built up so far. Two: what that means per month later, because a large total sounds very different from the same total divided by twenty years. Three: whether there are pots sitting at employers you'd forgotten, which happens more often than you'd think. Write down the gap between your expected pension and your current fixed costs. That gap is the whole assignment.

Stocky says

Changed jobs? Find out whether your old build-up moved into the new scheme or stayed behind. Either is fine, but you need to know which.

The employer contribution is the only free return that exists

If your employer pays in when you pay in, that's immediate return you can't get anywhere else. A scheme where the employer matches every euro of yours is a hundred percent return on day one, before anything has been invested at all. Yet a startling share of people leave that money on the table because the form stayed on the pile. If you do only one thing from this entire chapter: find out whether such a contribution exists and whether you're taking all of it. That's the best-paid ten minutes of your year.

Why that pot belongs in the market

Many people are alarmed to hear their pension money sits in shares. But that's exactly why it works: money with thirty years ahead of it belongs in equities, because that's where it beats inflation. What good schemes run is called a glide path: plenty of shares while you're young, steadily fewer as your retirement date approaches.

That's precisely the wind-down from the previous lesson, only someone else does it for you. Do check which glide path was applied to you, because a default setting that's too cautious costs more over thirty years than every fee combined.

Work for yourself and the middle layer is missing

The self-employed, freelancers and business owners have no employer paying in. That second layer simply doesn't exist, and it's usually the biggest piece. You only notice the consequence thirty years later, by which point it's too late to catch up. The fix isn't complicated but it is dull: play the employer's role yourself.

A fixed percentage of every invoice, every month, automatically, into a separate account or a pension product. What an employee never sees because it comes out of gross pay, you have to move deliberately. That is the single most important sentence here for anyone working for themselves.