No one ever expected the Spanish Inquisition, either

New research from Age UK Enterprises shows that apparently (surprise!) the majority of over 60s (74%) have made exciting plans for their retirement,from extended overseas holidays (26%), to home refurbishments (20%). However that optimism is countered by a lack of confidence in how far their money will stretch – with over a quarter of respondents (29%) feeling uncertain or negative about their current financial situation.

They state: “With tumbling annuity rates and poor returns on savings, securing a comfortable retirement has become an ever more challenging task. More than a quarter (27%) of those who feel uncertain or negative about their current financial situation feel that the financial crisis has heavily impacted on their financial plans for retirement, while more than one in four (29%) stated they didn’t earn enough money throughout their career to save for later life. However, the majority (81%) of those who are pessimistic about their finances believe that they didn’t spend enough time planning for retirement.”

The research findings in themselves hardly tell us anything new. In the current economic climate retirement planning is a bit like writing your Christmas list when you’re a child; you know what you’d love to have but you also realise that you’re unlikely to get it – certainly not everything, anyway.

However, the findings also highlight a glaring dilemma in mentioning “tumbling annuity rates and poor returns on savings”. This being the case, even those who have ‘planned’ and put more money into pensions and savings will hardly be dancing with delight.

Overall, this news item only adds fuel to the argument that says we need to stop thinking of retirement savings purely in terms of pensions and current accounts and start thinking more creatively. Also older people need the option of continuing to work longer on a part-time basis rather than expecting a period of full-time retirement that currently may last several decades.

…What was that saying about not being able to solve a problem using the same thinking that created it?

NEST (Not Exactly Scintillating Topic)

This year sees the launch of the NEST (National Employment Savings Trust) pension scheme providing a route into pension saving that to date has been denied to many or not pursued by many. We wish it well and hope that individuals do really see the benefit of saving for their later life whether that will truly be retirement or will be some mixture of work and supplementary income provided by a pension.

As part of the preparation phase NEST has commissioned a survey from YouGov covering people’s understanding/attitude towards pensions with the following rather predictable findings. Only 6 per cent of people interviewed think pensions are ‘straightforward’. Only 4 per cent believe pensions are ‘easy to understand’ and just 3 per cent agree that pensions are ‘simple’. In addition, only 5 per cent of respondents found pensions ‘interesting’ and 2 per cent agreed they are ‘engaging’ (who are these people?). The words people more strongly associate with pensions are ‘confusing’, ‘complicated’ ‘boring’, ‘difficult’ and ‘off-putting’.

NEST will be competing with many other pension providers in trying to convince individuals that pensions and, in particular, saving through NEST is in their best interests. And even if people had the spare cash to save, bad publicity regarding low investment returns, plus high fees and administration costs have made savers highly sceptical.

Nor is the only way to save for later years through pensions alone. There are other ways, for example investing in property and then downsizing later or releasing equity. These have their pros and cons and also their problems, as a recent Which? survey has revealed.

The point is that the vast majority of the population has a long, long way to go to become sufficiently adept and confident in financial matters of any kind but, in particular, saving for retirement.

There will also continue to be a major problem as long as products are pushed by those with particular vested interests, “bigging up” the merits of their offering while failing to give people a detached, dispassionate and objective real understanding of the issues.

No number of whizzy phrasebooks or self-indulgent videos will remedy this.

On the fiddle?

At a time when many people ought to be saving in one way or another and yet aren’t owing to lack of financial literacy, lack of funds or a basic mistrust of the financial services industry and the long term cost of the advice of financial advisers it is interesting to take a quick snapshot of what is going on.

The cost structure associated with using a financial adviser is going to change in 2013 to make it more transparent and, hopefully, perceived better value for money. Unsurprisingly, surveys suggest that this will lead to a significant exodus of financial advisers from this kind of work. For more on the changes see a Which? summary:

(http://www.which.co.uk/news/2011/09/60-second-guide-to-the-future-of-financial-advice-264445/)

Financial advisers are people qualified in their field and are allowed to sell/advise specific products. OK so far.

But the overwhelming need is for people to understand what money is all about in a much more basic sense. Hence, amongst other things, the very laudable campaign by Martin Lewis of Martin’s Money Tips fame to start at a very early stage and bring such education into schools.

Another initiative is the Money Advice Service. Here are a few extracts from their site:

“Our vision is to enhance people’s lives because they take control of their money as a matter of course.”

“The Money Advice Service is here to help everyone manage their money better. We do this by giving clear, unbiased money advice to help people make informed choices.

We believe that the right money advice can make a difference to people’s lives. And when people take steps to manage their money better, they can live better too.

The Money Advice Service is a free, independent service. We were set up by government and are funded by a levy on the financial services industry.

Because we’re not selling anything ourselves, or for anyone else, you can trust our advice.”

Again, a very laudable idea, but in my opinion an underwhelming, low profile service which still does not attack basic financial illiteracy.

But that’s not the fun part. As can be seen above the service is funded by a levy on the financial services industry that is, in part, financial advisers who see this as a threat to their existence that they are having to pay for, adding insult to injury.

And, so, while the British population struggles with problems like “shall we do without heating to pay for food?” what debate is taking place between Financial Advisers and Money Advice Service? It revolves around the difference between “financial advice” and “money advice” and when does “advice” become “guidance” or, indeed, “education”.

The words “burns”, “Nero” and “Rome” spring to mind.

 

“The Third Way” – now I understand it

After many years of listening to the soundbites and wondering what precisely “The Third Way” was I think that I am beginning to understand.

A number of surveys and pieces of research have come out this month, notably from Prudential and from LV=, which by coincidence have led to headlines all revolving around a third.

Here are a few to whet your appetite.

“One in three workers are without a pension

One in three workers in the UK does not have a private or company pension, meaning that around 15 million will have to rely on the state pension or personal savings when they retire, according to stark new research.”

And another

“A third of Britons stop pension payments

A third of working adults have stopped paying into their pension schemes as they can no longer afford to, according to new research.“

And another

“Home is pension for a third of retirees despite falling house prices

Rise of the HIPpies (‘Home is Pension’) generation: two million over-50s are planning to use equity in their property to help fund their retirement^“

 

So this is the legacy that people are now having to deal with – pretty worrying really.

And why a third? Well obviously the numbers all came in at around that level. But what makes it such an intriguing headline? I suggest that, while stopping just short of apocalypse and complete meltdown, it is still a pretty horrifying number.

 

 

The need for personal financial education

Spring is here, we’ve had the budget, the clocks have changed and the immediate budget headlines have subsided – a good time to review where we are at.

So, we must get down to the serious stuff and there is plenty of it. We are entering a new governmental financial year and now is the time that all the cuts are going to start having an impact; on jobs, on funding, on contracts for both public and private sector. Also we are now firmly in the implementation phase of the abolition of the Default Retirement Age and employers and employees have a whole new challenge ahead of them.

Meanwhile, people keep getting older and reaching, or not reaching, retirement age as the case may be. But, nevertheless, many are looking ahead of them and seeing that life may not be as rosy as they would have liked or even expected, only a few years ago. Pensions may be inadequate, retirement plans are being put on hold and the spectre of having to find funds for care costs for oneself or one’s relatives is looming larger.

No doubt we will muddle on and, hopefully, in the long run times will get better. But some of the fundamental problems will not go away and one of them is the general lack of understanding of what it takes on an individual basis, structurally and financially, to get through life in some kind of a balanced fashion.

To do some things in life you have to throw large sums of money at them; for others you just have put in time and effort and commitment. This falls into the latter category.

It really is time people had a better grasp of the financial aspects of life and thereby more confidence to plan the lives ahead of them.

But they need help. For more click here

A financial “perfect storm” is about to hit us

We now really do seem to be heading towards a perfect storm at an alarming rate. The country cannot afford future pension, health and care costs for our ever-increasing older population; individuals themselves cannot afford to retire because of inadequate savings and pensions and yet may be turfed out of their jobs (if they have one) at age 65 without so much as a by-your-leave; the support ratio of working persons to retired persons is declining  fast and will put intolerable strain on the future working population; the government’s pension planning is in disarray and no one is prepared to bite the bullet in any shape or form before the next election; and the population at large cannot afford to save, have lost faith in most savings vehicles and lost trust in the organisations providing them, and prefer to spend what they have today and not think too much about the future.

It, therefore, comes not a moment too soon that some attention, albeit lip service, is being given to tackling the wholly inadequate level of financial literacy in the country. Starting at school level must be the correct long term strategy but that will not work its way through to the adult population for many years to come. Something has to be done for today’s adults and the best place to start that is in the workplace.

The Financial Services Authority (FSA) would say that it is already tackling the question of “generic financial advice” but it has a number of shortcomings in its offering. Firstly, to win the confidence of a very cynical populace, its advice and its advisers must be seen to be far more independent and detached than at present; secondly it must be prepared to invest more time in its education process; and thirdly it must recognise that most people are not equipped to work on a menu driven, individual problem solving basis – they really do have to be taken back to square one.

This last point is not intended to be patronising in any way. Whether dealing with the man or woman in the street or large company directors it is almost impossible to overstate the difficulty and lack of understanding people have, even with the basics. Despite knowing that it is important, the subject is riddled with jargon and complexity, and deals with numbers – which many have difficulty with at the best of times. How much easier to say that it is “boring” rather than “I don’t understand”, and put off dealing with the problems. But “understand” people must and sooner rather than later!

Saving for retirement – the biscuit tin approach

Hardly a day goes by now without another piece of depressing information about the state of the nation’s pensions. In the last few days alone we have seen more defined benefit schemes closing, more reports on the lack of savings that individuals are making particularly during the recession, and soaring bankruptcy numbers among pensioners. One report, highlighting the fact that many are now unable to foresee when they might retire or how they might have adequate savings to live on, has  coined the term “baby gloomers”  to describe the plight that people feel they are in.

The advice that comes from the financial industry is plentiful but very self-serving: “save more for a pension”; “release some equity from your home”; “tuck your money away in an ISA”; “invest in buy-to let”; and more. The government believes that the answer lies in personal accounts which everyone will flock to in a few years’ time – we will see.

Many people, knowing their savings are insufficient but not by how much, would like to work longer, certainly past 65. Yet the government is still dragging its heels in a most extraordinary fashion. This is despite the fact that change is inevitable. The state pension age will be increasing to 68 in the coming years but the default retirement age is currently 65. What are people going to do –starve for three years? One glimmer of hope that the recession is providing is that firms are beginning to see the futility of redundancy as an answer to their problems and are looking at more innovative ways of managing the current problems with flexible arrangements, part-time working, sabbaticals etc. all now featuring. These are also ideal tools for dealing with an ageing workforce.

However, the first problem that must be addressed is one of awareness. There is, in the country as a whole, an order of magnitude lack of understanding among people of all ages as to exactly what it takes in financial terms to retire in some form of comfort. A fundamental and far reaching “reality check” is needed to reconcile the aspirational dream of an interesting, financially secure retirement with the ongoing provision that individuals are making through their working lives.

Retirement financial planning involves running up a store of wealth, retiring, and then running it down again over the course of the rest of our life – as simple as that. Building up a retirement pot is very much like tucking money away in a biscuit tin each week to save for Christmas – except Christmas may last twenty years or more.

For more see  Saving for retirement – the biscuit tin approach

Pension Reform and Personal Accounts after the Credit Crunch

Last Tuesday (24^th March) the International Longevity Centre-UK (ILC-UK) and the Actuarial Profession hosted a Joint Debate at the Institute of Actuaries in London on aspects of pension reform and personal accounts and the implications of the current credit crunch.

Chaired by Baroness Sally Greengross and introduced by a speech from Nigel Waterson MP, Shadow Pensions Minister and Shadow Minister for Older People, the 2-hour session was remarkably interesting (if you’re into that kind of thing) and was extremely well-attended, mostly by people from within the pensions, actuarial and financial services industry.

As this was a debate mainly consisting of people inside the industry “looking out” there was a substantial element of “preaching to the basically converted” and much of the debate was about the “how” of saving for one’s old age and whether this did the trick. There was, therefore, a lot of comment regarding what one might consider to be the technicalities of structuring and operating a pension scheme. Also, running through, was the (unsupported) hope that people would move away from property as the means to save and back towards pensions.

In this latter respect research by the Pensions Policy Institute, represented by Niki Cleal, was particularly revealing. Her comment was, in a nutshell, that those who saved probably saved across the board, that is pensions, property and ISAs etc., in contrast to those who probably had little of any. This is not a case of substitution and changing asset allocation.

Rather, we believe,  this is due to:-

1)       the lack of sufficient resources for people to be able to save at the current time, or possibly any time

2)       the phenomenal lack of understanding, generally, of what it will take to support oneself in old age in an appropriate style and over an extended and growing potential lifespan.

It is, therefore, the “why” people need to save that must also be addressed. There is an enormous educational task to be undertaken among the population in general and, until this is carried out, even the best designed schemes will have difficulty in succeeding. But all this is manageable given the will.

We are not talking deckchairs, shuffling, Titanic…yet.

Savings, sacrifices and retirement security

News today from Alliance and Leicester (see below for link) that 42% of “Silver Savers” have made sacrifices to help ensure they enjoy a comfortable retirement. The mind boggles.

Are there boomers out there in the dead of night slaughtering unsuspecting beasts and drinking their still-warm blood, shrieking, wailing, ripping off cardigans and comfy slippers and hurling them into bright bonfire flames? Are we selling grandchildren to the slave trade, or fleeing our homes to live in tents?

Probably not. I guess just like everybody else we’re not going out to dinner quite so much (so maybe we are slaughtering unsuspecting beasts…?), taking a rain check on yet another holiday and deciding that a score of shoes is more than enough for anyone. Irksome. But not exactly sacrificial.

Oh – and apparently ”the majority of people (58%) over 50 do not harbour any illusions of an extravagant retirement lifestyle”. Hardly surprising if we haven’t got one now – and a bit scary that 42% do.

http://www.alliance-leicester-group.co.uk/html/media/non-indexed/release.aspx?txtCode=PR2511081

Retirement planning in uncertain times

By all accounts retirement planning confidence is at an all-time low with about half (49%) of 30-50 year old “pre-retireds” feeling that they will not be able to enjoy a comfortable retirement. Unsurprisingly women are particularly concerned with almost half of them (49%) fearing they won’t be able to make sufficient provision for retirement compared to just over a third (36%) of  men (Source: Annual Retirement Confidence Index, Alliance Trust Savings).  A further report from GE Money maintains that only one in four adults are confident that their pension will see them through retirement, while analysis carried out by mortgage website, www.impartial.co.uk reveals that more than a million 65 year olds will still be paying mortgages when they retire.

If some or all of the above applies to you then the biggest comfort you might take is that however precarious your financial situation, you’re not alone. And with the scale of the problem so large, something, somehow will have to change. But of course, we don’t know what that might be or when it might happen, so the best strategy is to do what you can on an individual basis. Reading our new primer Retirement planning in uncertain times is a good place to start in terms of understanding the issues – particularly the fact that it’s never too late to do something to improve your future situation. And even if you’re one of the lucky ones with a great financial future – don’t ignore the issues and be too complacent. As they say, and as recent developments have graphically shown, the value of your investments can also go down.

‘Sandwich generation’ feel the squeeze as they spend £1.5bn a year to support children and parents

Couples with grown-up children and ageing parents are spending more than £1.5billion every year to help support them.

Figures revealed highlighted the growing costs to the so-called ‘sandwich generation’, people who are squeezed between offspring and elderly relatives.
More than 250,000 Britons are currently paying for their grown-up children and at least one ageing parent, according to research by Unbiased.co.uk website, which searches for financial advisors.

Click here for more >>

(Source: Mail Online)

Fifty ways to save money

The credit crunch has left most of us feeling the pinch, but there are plenty of simple measures that can help make your cash stretch further. Here Miss Pennypincher reveals her top 50 money-saving tips to help you weather the storm.

Click here for more >>

(Source: Telegraph.co.uk)