MSE News: How to defuse the pension time bomb

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"Britons must increase the amount they save by thousands of pounds a year to secure a decent retirement income, research suggests ..."

Read the full story:
How to defuse the pension time bomb

hugheskevi

The worrying figures should not concern the 7.5 million people with a gold-plated final salary pension who get a retirement income based on their salary and years of service.

Rather simplistic - a few years of a final salary pension won't give much retirement income. If someone has neglected to make pension provision earlier in their career they may well wish to set aside more into a pension to make up for their low pension savings, despite being in a final-salary scheme.

A higher rate taxpayer who saves £80 will also get £100 paid into their pot, but at the end of the tax year they can claim a further 20%.

It can be claimed before the end of the tax year, by asking HMRC to adjust the tax code. This can be done even before a pension contribution is made, in anticipation of making a contribution later in the tax year.

SonOfPearl

I do wish journalists would stop using the expression "gold plated" to describe final salary pension schemes. They are only good pensions inasmuch as the employer bears the investment risk (in funded schemes). How valuable the pension is depends on the terms of the individual scheme. Simplistically calling them all 'gold plated' doesn't help encourage a rational discussion concerning them.

Andyc24_uk

While this makes a lot of sense for those who will be retiring in the next 15-20 years, I think for those of us currently in our 20s and 30s, there's a bigger question to be considered here : How secure in the long term are these investments? If we save money in pension funds now, will it really be there in 30-40 years' time when we come to collect it?

We've already seen in the last couple of years the damage a relatively minor (on the grand scale of things) economic upheaval has caused - Billions wiped off investments worldwide; several of what in 2006 everyone would have regarded as the leading financial institutions in the world completely wiped out; and the pensions black hole getting ever wider. Even if the worst of this current crisis is over - and that's far from certain - Is it really reasonable to expect that we're going to get through the next 40 years without something similar or worse happening again, swallowing up all the money we've been squirrelling away for retirement?

Consider that within the next 40 years, the world will have to find some way of funding a huge number of retiring 'baby boomers' who don't have enough savings, while simultaneously dealing with a smaller workforce caused by population changes, who will therefore be contributing less to the economy. The numbers simply don't add up. The only way the numbers can possibly be made to add up is if the savings made by the younger generation are used to plug the gap - so what happens when we reach retirement age? The money has already been spent, and there's less than ever coming in to replace it...

I guess it comes down to how much faith one has in financial institutions, and in some ways in the current economic system as a whole. My personal view is that the current global economic model is inherently unsustainable and that it is going to reach the limits of its finite potential well before I come to retire. Without wanting to sound like some kind of crackpot Marxist, I think by 2053, the year at which I'll hit 70 and realistically the earliest I'll be able to retire, the global economic system will, by necessity, look very different to what it does now.

So while increasing one's pension savings may be a good idea for those for whom retirement is on the horizon, for the younger generation of workers perhaps instead of investing money in a pension plan that may or may not be able to deliver in 30 or 40 years' time, it might be worth considering alternative methods to provide for old age...

CLAPTON

SonOfPearl wrote: »

I do wish journalists would stop using the expression "gold plated" to describe final salary pension schemes. They are only good pensions inasmuch as the employer bears the investment risk (in funded schemes). How valuable the pension is depends on the terms of the individual scheme. Simplistically calling them all 'gold plated' doesn't help encourage a rational discussion concerning them.

well maybe or maybe not gold plated but

the employer (or taxpayer) does indeed take all the investment risk
the employee pays relatively little typical 6-8% for a pension that would cost 20-25% of salary
the final pension is indexed linked
typically include spouse/partner pension
good children pension if you die in service

and many public sector pensions in fact allow people to retire early with no actuarial reduction in benefits

some would say gold plated is a fair description

dunstonh

We've already seen in the last couple of years the damage a relatively minor (on the grand scale of things) economic upheaval has caused - Billions wiped off investments worldwide

Most people are back to around 2007-2008 figures now. In the scheme of 20-30-40 years of investing, its a insignificant amount. Indeed, for most, its actually a good thing as for 3 years investments have been cheaper to buy.

This is not the first financial crisis. It wont be the last. There have been 8 since 1956. They occur on average every 7 years. The scale differs but they are not new. Its just that we have 24 hour media nowadays that likes to scaremonger and a generation that had to wait longer than average for their first recession.

me_cynical?

This article is just the same old nonsense.

Defusing the retirement time bomb requires a discussion on retirement age, this has been dodged by Governments of all persuasions since I don't know when. We can't afford people to retire with 20+ years of life expectancy left and we should admit it. The timid proposals to lift retirement age to 67 are too little too late.

As to young people needing to save more, how can they when they are busy paying off student fees, trying to afford one of our overpriced properties and heaven help them, trying to afford to raise children. Actually I do have the answer for that; don't get educated, don't get a job; don't get your own house and the state will provide everything you need because if you do save for a pension and then have the temerity to have savings then expect to get less.

There is no incentive to save, even less so with the punitively low interest rates and until that is addressed people like me will just ignore any need to save for a pension. No, I don't plan to retire until ill health or death get to me. I'll continue working and paying my taxes like any self respecting person who contrary to the majority don't believe we have an inbuilt right to everything.

Yours cynically.

Paul_Herring

As I pointed out elsewhere, this is a 'report' produced by two pension fund companies telling us we need to put more money into - erm - pension funds.

Their methodology is somewhat suspect.

EdCov

CLAPTON wrote: »

well maybe or maybe not gold plated but

the employer (or taxpayer) does indeed take all the investment risk
the employee pays relatively little typical 6-8% for a pension that would cost 20-25% of salary
the final pension is indexed linked
typically include spouse/partner pension
good children pension if you die in service

and many public sector pensions in fact allow people to retire early with no actuarial reduction in benefits

some would say gold plated is a fair description

Some people would say gold plated, some people would use the word decent. The issue is not the benefits but whether people get the benefits too cheaply.

What I deeply resent is Cameron saying gold plated, the real issue in this country is inherited wealth. I think people who work hard should get a decent pension.

The Conservatives think that if you are not born rich, or do not make your millions in the private sector, you deserve to be poor.

Cameron was born gold plated, he needed to do nothing to do that, people who work hard should get a decent pension.

If we as a country cannot enable people to work and earn a decent pension, we are not much of a country. The fact that many people who work hard in this country will never have a decent pension, is a shame on us all.

Rant over, sorry.

jamesd

This shares some of the same flaws as the government's proposal to eliminate the requirement to annuitise: it only counts pension annuity or other pension income in the test. Yet reality is:

5th decile of 50-state pension age people have 30% state pensions, 30% private pension, 30% housing and 10% other wealth to live off. And the percentage of those having income replacement rates below target in retirement is:

38-43% counting only pension income
29% adding all other non-pension, non-housing and non-inheritance money
18% adding half of housing wealth (trading down)
16% adding inheritances

So the pension companies are making the situation look worse than it is by missing out much of the retirement planning picture.

EdCov wrote: »

the real issue in this country is inherited wealth. I think people who work hard should get a decent pension. ... Rant over, sorry.

It was a nice rant but since inheritance only had a little effect on those not meeting retirement income targets, perhaps you may consider decreasing the relative importance of inheritance in your understanding of the situation.

Source: Second Report of the Pensions Commission, page 79.

Paul_Herring

me_cynical? wrote: »

There is no incentive to save, even less so with the punitively low interest rates and until that is addressed people like me will just ignore any need to save for a pension

Where ever your money is for your pension, one place it shouldn't (100%) be for the majority of the time is in cash.