Pension Apathy = Penniless Pensioners
SEPTEMBER 10TH, 2009 By DAVID
The buy now pay later philosophy will definitely catch up with the cash happy twenty and thirty something generation. My friends just don’t get the word ‘SAVING’. Their eyes glazed over when I asked them if they’re contributing to a pension, as it’s not something they’re inclined to give much thought to let alone action.
But the reality is, whether you’re in your twenties or your fifties people are just not saving enough for the long term. There has been oodles written about this topic recently. According to clever statisticians a 30 year old has a 70% chance of reaching 85 years of age and a 55 year old a 63% chance. More than half of UK adults don’t know how to set up a pension, many are just not saving enough to give them a good standard of living in retirement and many are banking on receiving an inheritance rather than their own savings to see them through. As a nation we have never saved as little as we do today. The average UK household saves a paltry 1.7% of its annual income, the lowest rate since 1959, and a far cry from the 1980s and 1990s when the average savings rate was 8.71% and 9.21% respectively.
The long term situation will only get worse and relying on the State Pension system alone is no longer a viable strategy. Recent changes to the State Pension system mean that between 2024 and 2046, the State Pension age for both men and women will increase from 65 to 68. Indeed, Lord Adair Turner, the author of a key report on pension reform and the current chairman of the Financial Services Authority, has recently said that the State Pension age should be raised to 70.
Private sector companies are closing their attractive benefit laden defined benefit pension schemes to new recruits and increasingly to existing members. Unless you work in the public sector it’s likely that these schemes will eventually be unheard of. So, the onus is on you to start taking responsibility for your own finances.
I do have some sympathy with my generation. We’ve not been brought up with our parent’s fiscal discipline. Easy credit has lured us from these values. We don’t have to save to get what we want. We just get it. Culturally, we are a nation obsessed with property. If you don’t live in your own property by the age of 30, you might as well live in the wilderness! Combined with spiralling higher education debt and sociable lifestyles, plus the pressure to get on the housing ladder means surprisingly the spare money to stash just isn’t there.
You may be wondering why I have decided to write about the perilous state of the nation’s retirement provision. The answer is quite simple. Over the last few months we have received a number of enquires from clients who are worried about their retirement provision.
If you are concerned about your own retirement provision, then the first thing you should do is get independent advice and find out what your existing provision is likely to provide when you retire. You need to ask yourself what level of income you would like in retirement and to establish the potential shortfall/surplus if you continue to save at your current rate? If your existing provision is not going to meet your expectations then look at your spending habits. Are there any sacrifices you can make? What can you realistically afford to save? If you are struggling to save more, then you may have to downgrade your lifestyle expectations in retirement.
It is important to stress that retirement planning doesn’t just have to be limited to pensions. It can include things such as ISAs and rental property, and as with anything, it is important to strike the right balance between your current and future needs.
Posted in: Retirement planning 5 Comments
Other Links to this Post
RSS feed for comments on this post. TrackBack URI
By Nick Shirley, October 29, 2009 @ 8:03 pm
Xcellent advice and reminds me to review my pension provisions with your team, as any state provisions appear to be diminishing with each passing decade.
By Clare Grace, November 10, 2009 @ 1:20 pm
I couldn’t agree more that people are not saving enough for retirement. However, as a 36 year old I am currently looking at a retirement age of 68. The goverment has another 30 years to change that age further to a higher age of 70 or even 75. By the time I get to draw on my pension, I will be looking at a much shorter time period of recuping the investment in the annuity that I have to purchase. I think we need to not just focus on the some what restrictive pension plans and also look at other investment vehicles that may offer more flexibility in when we can look to cash in on our savings.
By Angela, November 18, 2009 @ 4:46 pm
This is sound advice. Definitely time to cut up the credit card and review my pension. I can’t believe the state pension age is going to increase to 68!
By Jo Whittaker, November 24, 2009 @ 12:42 pm
Thanks for your comments Angela – I will keep you posted.
By David, November 24, 2009 @ 3:24 pm
Clare, it’s great that you’re seriously thinking this far ahead. A pension scheme should always form the core component of your retirement planning. This can be supplemented by ISAs, share portfolios, rental property etc. Pensions and ISAs are both tax efficient ways of building up capital and don’t forget you get tax relief on your pension contributions which is valuable if you are a higher rate tax payer. Good luck.