We’re now seeing a steady stream of information and surveys in relation to the ability, or otherwise, of people being able to retire when they would like to, in good financial health. While much of the research is coming from financial institutions and politically motivated think-tanks, both of whom have significant vested interests, the messages coming through are extremely consistent. Furthermore, they have huge implications for people of all ages.
In a couple of years we’ll start to see the moves towards harmonisation of male and female state pension ages, so that by 2020 the generally accepted retirement age will be 65 for everyone. And this itself will rise in stages until, sometime in the period between 2044 and 2046, 68 will become the starting point for state pensions. With so many people now living to a ripe old age this pension will become a smaller and smaller proportion of what we will have to live on. Even retiring at 68 is likely to give us a good few years of retirement with life expectancy now into our late 80s and, if we get that far, then taking us into our nineties and above.
There is no doubt that we’ll have to supplement our government pensions with other forms of finance, whether direct savings, pensions plans or money released from investing in property. But first we have to be able to understand the issues, to afford to save, and to have confidence in the methods available to us. Research by a think-tank, The Policy Exchange, reveals that fewer than 1 in 4 workers (24%) have a private pension as their main additional source of retirement income to the basic state pension, down from 39% in 1991/92.
Of course, many people are now pinning their hopes on their property financing their old age, either through downsizing or through equity release. We’re fast moving away from the notion that we’re each the head of a dynasty and we’ll be handing down riches for our children to enjoy. We’re now more likely to be thinking that we come into the world with nothing and we leave with nothing, and we must manage the process in between. More probable is the notion that we need to help our offspring when they’re young and starting out and that they’ll have to help us out in later years.
However, while some are telling us that our properties provide the solution to our problems, others are quite rightly issuing words of caution. As Standard Life points out, the capital sums released by downsizing may on the surface look quite large but they are unlikely to support a satisfactory lifestyle for as long as people may think or wish. Likewise, we are being exhorted to consider equity release and are told that the markets in the USA, Australia and New Zealand are more advanced than here in the UK. But, while releasing cash in this way certainly has its place the current trend to offer it those who may only be in their fifties may lead them to run out of resources much too early. Working that bit longer first is the recommended option.
With regards to the young starting to save for retirement, there are mixed messages. AXA tell us that people in the UK start to save for pensions earlier than anywhere else in Europe (possibly due to lower state pension expectations) but research conducted for the Skipton Building Society suggests that those under 35 face working until they are 76. This is dubbed the Tiswas generation after the Saturday morning children’s TV programme (Today Is Saturday Watch And Smile). Many just cannot afford to save enough leaving them with few options. They must either earn vast amounts of money later and save some, or live on peanuts in retirement or, as suggested here, work longer before retiring. If the state pension age becomes 68 in 2044 it will be applying to someone born in 1976 who is now 32. Working into one’s seventies will become the norm – which brings us to another question. How fit will we be at that age and how age-friendly will the workplace be?
Tiswas doesn’t stand for “Thirties – Insufficient Savings – Work And Suffer” but could.
And, as mentioned before, there is not going to be support from parents - quite the reverse in fact. That “sandwich generation” now coming through is retiring in more and more debt, according to Help the Aged and Barclays. And AXA anticipates that more and more older people will be looking for financial and material support from their children in retirement as is the case in many other countries and cultures.
So, unless this all a great big bad dream that we’ll awake from shortly, pretty soon there is going to have to be a large reality check and adjustment for many people. One of the urgent tasks must be good financial education and advice for everyone so that they can comprehend the nature and implications of what is going on.
