Pensions envy. Are we heading for financially comfortable but socially uncomfortable retirements?

Silvertabby

Part of my job as a LGPS administrator involved trying to pursuade members not to opt out of the scheme.  Most would listen to me reeling out the list of benefits they would be giving up, but then say that they still wanted to opt out because they 'needed' the money for X,Y or Z.

Many of these were people in their 20s or 30s, in well paid full time jobs.  I wonder if they will get to retirement age, consider the error of their ways and then try to complain that I wasn't 'pursuasive enough'!

Workerdrone

A little off topic but I feel its relevant.  It's a funny old thing human nature, especially envy. I've always been a saver (I don't like the idea of being poor), hence always saved toward my longer term goals.

Back when I was 18 (I'm 45 now), I had a break up with my girlfriend that hit me hard. I needed something to focus on so for the next 3 years I did nothing but overtime 6 days a week followed by going to the gym.

At 21 I bought a brand new Lotus Elise S1 (They had just come out). I just loved the look of the car and It was something to polish. Was never a boy racer (Dad being a ROSPA instructor put pay to that).

What I hadn't expected was the amount of stick I would get for it. "Your dad bought it for you", "Your spoilt" etc. It was even vandalised at one point when parked up.

Thing is, I still incredibly now get comments now from people I barely know. Oh you're that lad who's dad bought him the Lotus. Theres even one lad in his early 20's who lives over the back of me who I overheard last summer having a right whinge to his mate about the posh !!!!!! over the fence who's dad bought him a Lotus and a load of other made up cobblers about my families financial circumstance. I thought to myself, "Christ you weren't even born back in 1997, what gives!"

I have a friend (He's a taxman now but don't hold that against him) who did the same as me (although I didn't know him at the time) at the same age, and had the same experience.

So yes, its seems it's a common theme with human nature not to accept responsibility for your own failings and instead to blame others success not on their own diligence but on some other easy route which you weren't blessed with.

hugheskevi

It is interesting to think what typical retirement patterns might look like in the future, given all the various changes:

• State Pension age is 66 for all now, increasing to 67 by 2028.
  
• State Pension has shifted fairly rapidly from a participation and earnings related system into what will be essentially a flat-rate system for the vast majority. Combined with social change, this has significantly benefited women.
  
• Minimum pension age is 55, increasing to 57 by 2028
  
• New accruals of public service pension track State Pension age, but still with lots of legacy scheme accrual, particularly due to McCloud verdict. Although, McCloud only affects those who started service before 2012. There appears to be a strong aversion to taking an early retirement 'penalty' (ie actuarial reduction) which may lead to longer working.
  
• Defined Benefit in the private sector has been declining for years, yet there is still a lot of legacy accrual, with 5.6m active and deferred private section DB memberships. Very few of these have uncapped inflation protection.
• It is likely some form of expansion of automatic enrolment will take place - possibly an increase in rate of contribution, but perhaps more likely an expansion of eligible earnings to cover all earnings, not just banded earnings, and possible an expansion of age-based criteria.

Some of the possible outcomes of this may be:

• Early retirement becoming something associated with retirement in late fifties/early sixties.
• More retirements being triggered by ill-health and inability to work, leading to more reliance on DC pots to cover gap to State Pension age
  
• Triple-lock will be increasingly hard to move away from. This may lead to the books being balanced by more emphasis on increasing State Pension age to keep costs contained should inflation and earnings be below 2.5%.
  
• If inflation is higher, there is then significant inflation risk for those with private sector DB pension in payment (revaluation rules mean that a spell of moderately higher inflation won't bite immediately, as many will have significant headroom in the way the caps are applied due to past low inflation)
• A gradual change, as legacy DB is still a big part of the retirement system in both public and private sector, and to a lesser extent State Pension protections evolve. If there is no further change, it looks like a new steady-state might emerge from around 2028 onwards.
• Due to the legacy pension in public sector, a much higher demand for partial retirement from age 60 onwards. Due to ancient rules about abatement (can't earn more than full-time salary as a result of pension plus salary) there will be a lot more demand for working 2, 3 or 4 day-weeks for those in their 60s.
  
• There will probably need to be innovation in the mass-market decumulation sector, as more people retire with DC-only pension, and with larger amounts of DC pension.
• In the longer term, people may struggle on death of a partner, as they lose all of their State Pension. This could lead to pressure on old age low income in the decades to come. This could be exacerbated by people mismanaging DC pots and running out of private pension before death.
  
• The pension and tax system of allowances is much more generous for couples who both have decent incomes than it is for a single high-earner with a non-working partner. That is an increasingly expensive lifestyle choice.
  

I think there is enough there to avoid any social discomfort around either early retirement (sickness, legacy public sector, decision to front-load decumulation or adequate wealth provision) or adequacy (public sector or adequate wealth provision). The key issues will be if there is higher inflation, and increasingly we may return to the challenge of old-age poverty, especially after death of a partner. But very old-age poverty is unlikely to get widespread coverage, so may not be a concern.

zagfles

Workerdrone said:

For me and probably quite a few on here pension saving is almost a hobby. I set a target date and amount and I get a kick out of finding ways to put extra away or when I see my pot grow.

But I realise this is not for everyone. When reading the news/other forums/Facebook editorials I tend to jump on articles which mention pensions. Having read the article, I then scroll down to the comments.

Theres a shocking amount of negativity around pensions in general, ranging from "I can't afford to save anything", "Who on earth has a million pound pension:", "It's the governments fault we have the lowest state pension in Europe" to "Pensions are a con".

Interspersed in this is the very occasional voice of reason pointing out the tax breaks and even the odd brave soul staring the uncomfortable truth "If you don't save, you have no-one to blame but yourself". Still it all seems to fall on deaf ears.

It seems the majority of Britains are still content to bury their heads regarding retirement savings whilst at the same time splurging on the latest phones, subscriptions, frothy coffees, foreign holidays and eating out.

Right now, the negativity is constrained to the comments section, but I also realise these people are our peer group and in 15-25 years time they are facing a bleak retirement whilst those like us who save are not.

Given the tendency for people to blame others/circumstances for their own misfortunes alongside suggesting others success was somehow a matter of luck or even immorality as opposed to hard work and fiscal prudence, are we facing a retirement where out hard saved for nice cars, holidays, meals and general lifestyle attract negativity (Or in the case of nice cars even vandalism)

Why do you suppose such people are representative? There's no more represetative than this board. There's loads of haters, ranters, conspiracy theorists and just stupid, bitter clueless, self pitying, judgemental people on social media. Just read tw*tter! Just compare what you read on social media with the recent election results. It's obvious the ranters are a tiny minority. As I said in another thread, media comment sections are full of such people but it's the same people who'll comment on everything time and time again. It gives them their outlet, their little bit of attention, if it was going to spill over into the real world it would have done by now.

Eldi_Dos

Silvertabby said:

Part of my job as a LGPS administrator involved trying to pursuade members not to opt out of the scheme.  Most would listen to me reeling out the list of benefits they would be giving up, but then say that they still wanted to opt out because they 'needed' the money for X,Y or Z.

Many of these were people in their 20s or 30s, in well paid full time jobs.  I wonder if they will get to retirement age, consider the error of their ways and then try to complain that I wasn't 'pursuasive enough'!

The first job I had that entitled me to a pension you had to be employed for two years before being invited to join the scheme and then if you left within five years you lost any entitlement built up.I declined to join as I felt it constrained your ability improve your prospects by taking advantage of job opportunities in what was quite a buoyant job market.It was not till I was 27 that I joined a pension scheme,and am now very glad that I did, as to whether it was the right choice I suppose it depends what end of the telescope you look at it from.

triplea35

Although people with pensions has increased to 80% since auto enrolment I believe the current minimum levels of contributions by employers is derisory. 3% employer contributions, after not counting the first £6k of the employees earnings, together with not having to join a scheme until employed 3 months, many low paid in such schemes will possibly have a false belief they may be comfortable in retirement! 

NannaH

It needs to be spelled out to younger people that they need to contribute 10%+ of their earnings to a pension from the start to have any chance of a comfortable retirement.
My daughter complained about having to pay 10.2% into the TPS until I explained the details and the fact that her employer pays over 20%!   That’s currently £15k a year going into her pension, she’s done 10 years now so even if she leaves Teaching at some point she will have a solid bedrock of pension behind her.  
 Unfortunately her partner has no pension despite earning £50k,  his employer’s scheme is just the basic auto enrolment,  at the moment he can’t afford it,  they have a huge mortgage, even though it’s less than 3x their income and he (quite rightly) supports his 2 other children from his ex.  Realistically he will be approaching 40 before he can contribute a meaningful amount. 

Albermarle

Thats the nice thing about this forum, its a place to take openly without fear of reprisal.

Apart from the threads where someone asks 'do I need to pay for an IFA?' 

eastcorkram

I wouldn't worry about it. I'm sure that as soon as it's politically popular, all pension savings deemed surplus, will be confiscated and re destributed to the needy 

Silvertabby

eastcorkram said:

I wouldn't worry about it. I'm sure that as soon as it's politically popular, all pension savings deemed surplus, will be confiscated and re destributed to the needy 

Not as daft as that sounds.  I'm not saying that this was actually Labour party policy, just that before the 2010 election a female Labour MP spouted her solution to the 'problem of single pensioners rattling round in big houses, when families were crammed into 2 bed flats'.  No, she didn't mean pensioners in council houses (ie, Labour voters) she meant owner occupiers.

Her 'solution' was to raise the council tax to an unaffordable level then offer the pensioner an 'appropriate' assisted living flat' for 'free' in return for allowing the house to be used as social housing.