July 8, 2009 1 Comment
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