Retirement Reform?

It was interesting to attend the Institute of Directors’ Roadmap for Retirement Reform presentation last Monday (October 19th) which they used to announce the launch of their new Centre for Retirement Reform.  On the face of it the presentation looked as if it would be largely about pensions but fortunately – and refreshingly – all the speakers seemed to recognise that pensions reform per se is not going to be enough.  Of course it was useful to be reminded yet again that our current pensions system was introduced when the average male life expectancy was 63 – what clearer evidence is needed of why it is no longer fit for purpose? But beyond this, the clear message from all seemed to be that meaningful impact in terms of reforming “retirement” will only come when employers create the culture, opportunities and support to help those people who want to, or need to, stay in work for longer. 

We look forward to finding out more about the work of the Centre as it develops. At this stage, perhaps we have two caveats.  Apparently one of the Centre’s first areas of interest is to be what are commonly labelled “olderpreneurs” – older individuals who start their own businesses. In respect of this we take the view that the focus needs to shift from helping older people to start a business (generally comparatively easy) to helping them build and sustain their business (difficult). Otherwise all that is happening is encouraging a new generation of business lemmings, racing towards a cliff-edge of failure and disappointment.  Additionally, and on a different note, we yet again call for the development of a new terminology. “Retirement” will only truly be reformed when we have an adequate vocabulary to describe all the various states (non-working, part-time working, portfolio working, self-employment, volunteering, etc) that are currently covered by this outmoded term.

 

 

“Building a society for all ages”

The deadline has now passed, at least for the moment, to make your voice heard to the government over their proposals outlined in “Building a society for all ages” a document which focuses predominantly on the issues surrounding our ageing population. The issues are very wide-ranging and extremely important.

We here, at in my prime, made our own representations in the fields in which we operate and if you are interested in seeing what we had to say please click here 

To read the original government document click here

Wise and foolish virgins

The gap between the “haves” and “have nots” in terms of pension provision is widening daily.

At one end of the scale those with fat, assured, protected pensions are sheltered from the economic woes of the majority of the ageing workforce. At the other end those with inadequate pensions face a future in which they will have to work for as long as possible before spending their remaining years in penury. Unfortunately this latter scenario is not necessarily a result of a lifetime of profligacy and reckless abandon; there are numerous reasons why those who have worked hard and done their best to save throughout their working lives still find themselves in a relatively pension-less situation.

Human nature being what it is one can see that this is going to cause problems. Working past normal retirement age may become a stigma – a sign to the rest of the world that the individual hasn’t managed their financial affairs properly and can’t afford to retire. The only antidote to this sorry state will be a change of attitude that sees later life working as desirable and aspirational – something to be valued and sought after even by those who don’t “need” the money. Many years ago there was a TV advertisement for a diet product which featured a (slim) woman saying “I eat xxx because I like to, not because I have to”. Something similar needs to be done, starting soon,  to improve the image of later life working.

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.

Big baffling retirement hopes

New research released today by Baring Asset Management under the banner “Credit crunch hits pension hopes” reveals that due to the recent financial turbulence people now expect to retire a year later than they did last year – anticipating on average that they will continue to work until age 63.

Fair enough, these things happen – another year at the coalface. What seems astonishing however is that despite all the doom and gloom about pensions this only represents the future for some people. In fact, 13% expect to have retired before they reach 56 while 31% hope to give up work between 56 and 60. Only about 15% of people think they will have to work on beyond the traditional retirement age of 65.

So nearly half the population (44%) still realistically believe they will retire before 60. Can’t be bad. Not exactly working till they drop then.

The main thrust of the story was to point out that 35% of workers have so far failed to make any pension provision, including 7% of people who plan to retire before they are 50, with many relying on property to provide them with a retirement income. Marino Valensise, chief investment officer at Barings, said: “These figures reveal a worrying trend of UK adults assuming that they will be in a position to retire without having made the necessary arrangements for funding that retirement”.

A worrying trend indeed, although I’d need greater clarity about who exactly these people are and which cloud they’re on before I’d worry too much. Far more worrying is the issue of what these people anticipate they are going to do with the rest of their lives. Retirement, of course, can be a glorious holiday for those with loads of money and interests, a happy partnership and a strong sense of who they are. For many, however, the reality of 30 or 40 years without much purpose in life can make retirement more of a life sentence than their job ever was.

For the “well-retired”, happiness seems to come from having thought through what their day-to-day life would add up to once the initial ecstasy of the retirement honeymoon has passed. They’ve planned for their mental sustenance as well as their physical needs – and for many, that means continuing some sort of work. However, getting a job post-retirement is undoubtedly going to be harder than ever in the economic climate of the next few years. The warning for premature retirees has surely got to be: “Think carefully about leaving the workplace. You may never get back”. For the relatively young, being on the scrapheap can be far more difficult to deal with than the realisation that the future isn’t going to be as financially rosy as they had hoped.

Statistics to die for

Last Wednesday, October 29^th, I attended a Joint Conference organised by the International Longevity Centre ( ILC-UK) and the Actuarial Profession entitled “Choosing Population Projections for Public Policy”. Not everybody’s idea of fun you might think but, nevertheless, it’s amazing just how much impact a debate like this has, or more correctly should have, on the well-being of every single one of us.

By now we should all be aware that people are living longer, people are going to have to work longer and that the country is going to have a lot of difficulty in finding the resources, financial and otherwise, to cope with the huge increase in the older population. The implications of all of this, therefore, permeate thinking in terms of retirement age, pensions, insurance, housing, health care, social care, transport and a host of other things.

Such thinking, and consequent planning, relies heavily on projections of population size, life expectancy and our state of health as we get older, not just a few years away but going deep into the future. The problem is that there is no consensus on what these figures are or even how they should be computed, nor who might be seen as tasked with turning these projections into a workable set of forecasts on which decisions can be made. And this provides an ideal opportunity to ignore the figures, to manipulate them or to be very selective in their use.

So what do the decision makers think of all of this – in particular those in government? The issues we are talking about need to be looked at in the context of answers that will see us through in the year 2030, in 2050, and well beyond. And the potential costs are huge – billions and billions. What it takes are people of statesmanlike vision and stature to guide us through. What we have is party political posturing which is only concerned with the short term and looking good at the next election.

And where better to lay the blame than on figures “we are not sure of”?

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.