Active Ageing in the European Union

Anyone interested in the field of age and work may be interested in this new book which explores the adoption of ‘active ageing’ policies by EU15 nations and the impact on older peoples’ work and retirement policy options.

The book, written by  Kate Hamblin a Research Fellow at the Oxford Institute of Population Ageing, explores the labour market policies (including unemployment benefits, active labour market policies and partial pension receipt) and pension policies (pension principles, early retirement and incentives for deferral) adopted by these nations from the mid-1990s onwards.

Unfortunately the price, £55, puts it out of reach of most readers.

Further details at  http://www.palgrave.com/products/title.aspx?pid=534123

The flat rate pension finally arrives.

At long last, and after many years of stalling, we are now close to having a flat rate, single tier state pension system. There has obviously been much coverage in the media and from various charity and support groups.

On the plus side they have highlighted how this will simplify an antiquated and largely unintelligible system so complicated and intrusive that many potential beneficiaries have chosen not to claim what they are entitled to. They have also drawn our attention to the transitional arrangements which are necessary and in which some people will appear to be winners and some losers (against expectations rather than against fact?). This is fine and necessary to make sure that in the changeover process all obvious inequities are dealt with and corrected.

As with all political initiatives such as this, first we get the good news regarding the move to a flat rate pension and then the not-so-good news that National Insurance contributions will have to increase to fund some of it. This does rather take the icing off the cake.

More worrying, though, are the views, already being expressed, that firstly the state pension is not enough (which we know or should do) and, linked to this, that not everyone should get this flat rate pension, that is a return to means testing. I had thought that for once, at long last, people had started to look at our demographic shift and its implications in a more statesmanlike fashion devoid of entrenched short term party politics – but it seems this is a very optimistic hope.

Such views totally miss the long term point of the changes. The flat rate state pension will never be enough on its own unless we tax people out of existence. However, by underpinning personal savings with this pension and then not confiscating it once individuals start to save for themselves we can give people the responsibility, the scope and the encouragement to plan themselves for their own financial well-being according to their own needs, choices and timeframes. And in what manner they choose, be it pensions, properties or direct investment.

Planning for old age – “at least meet me halfway”

Today’s newspapers and news outlets are almost all carrying a similar story regarding the over 50s “sleepwalking  into old age” with respect to their pension provision following comment by the National Association of Pension Funds (NAPF) and a report by the Institute for Fiscal Studies regarding increased life expectancy.

(e.g. http://www.bbc.co.uk/news/business-20543308)

Such issues are extremely important as is the allied issue about older people sleepwalking towards an unhealthy old age by virtue of their inappropriate lifestyle choices.

There is no shortage of information on these topics but rather people just do not seem to want to put any effort into understanding these things, matters which are going to affect a great part of their lives in a very fundamental way. Rather like my disappointment at not winning the lottery can be largely explained by the fact that I don’t buy any lottery tickets so individuals must show greater commitment and take greater responsibility for their own future well-being.

We all know it’s boring, we all know the institutions have vested interests (note the focus here on pensions and not other forms of financial provision) and we all know it can be difficult – but not that difficult, not the basics anyway!

So that people can get their heads around some of the issues I attach below the link to a brief description which I wrote a few years ago and which has not changed in the slightest way – except become more urgent.

http://www.inmyprime.info/factSheets/biscuit.htm

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?

Hands up who wants a Minister for Retirement

In the past there have been various calls for a Minister for Older People or similar to focus on issues such as the provision of care for the elderly. Now retirement income specialists Primetime Retirement are calling for a Minister for Retirement to focus on retirement and pre-retirement issues

In research undertaken with a representative sample of 389 over-55s they found that 64% would support the idea with another 11% unsure.

Primetime Retirement believes that this strong backing for the new Government role reflects a growing realisation that the whole concept of retirement is changing – requiring  new solutions from both Government and the private sector and generating a demand for innovation and leadership as the country grapples with the changing retirement issues.

“Of course appointing a Minister won’t solve all the issues but it would help focus the Government and other stakeholders on the need for more options in the retirement income debate,” their spokesman said

Would it? Really? And if such a person were to be appointed, who would it be, with what skills and serving whose interests?

Good and bad news about retirement funding

New research from international investment management firm, Baring Asset Management (Barings) shows that nearly half (15.7 million aged over 18) of people do not currently expect to use a pension to fund their retirement. The findings are part of an annual research program Barings undertakes looking at pensions planning and how people are preparing for retirement

The research shows that many people are relying on property, cash and even an inheritance to fund their retirement.   The number of people expecting that cash will form part of their retirement planning increased from 26% in the last survey in 2011 to 29% this time (some 10.5 million people).  The number that selected property as forming part of their retirement fund also increased two percentage points to 29%, equating to some 300,000 more people.

Even more surprising is that 17% of people, or six million in the UK, said they expect inheritance to help fund their retirement.  However, with the average UK inheritance estimated at around £45,000 per person, many people may be overestimating the role inherited assets may play in helping fund a retirement.

The study also found that one in four (25%) – 8.8 million people – admit they simply don’t know how they will fund their retirement.

These findings are good news in as much as they demonstrate that public trust in pensions is no longer a given and that people are considering other sources of funding – providing a challenge to the complacency of the existing pensions industry. However, they are bad news in terms of demonstrating many people’s continuing lack of preparedness for what is likely to be a long, unwaged and potentially impoverished period of life.

64% of businesses fail to provide retirement support

Most older employees are on their own when it comes to making decisions about retirement and working options in later life. According to a new report only 36% of employers provide their workers with guidance in the run-up to retirement.

In addition to this, the latest Real Retirement Report from Aviva found that today’s over-55s have typically been with their last employer for 16 years (around a third of their working life), and 56% of employers have spent money on providing work place benefits such as pensions, private medical insurance, and annual bonus.  However, the investment stops there. The majority of employers let their older employees drift away at retirement without providing any advice or support.

As the Aviva press release points out, this lack of guidance not only highlights a lack of commitment to employees but is also likely to lead to a loss of vital skills from older employees.  Almost a third (32%) of those who qualify for the state pension are still looking to work – at least on a part-time basis – so by engaging with an employee’s retirement planning a business may be able to keep their valuable employees for longer.

The report also revealed that the vast majority of employees aged over 55 who have received support from their employer welcomed it, with 70% saying they found it useful. The most useful types of retirement support according to employees are workshops on retirement finances (35%) and written literature on retirement finances (35%). 

Now the legislation relating to retirement has changed, part of the skill of managing older workers, ensuring their engagement and commitment, and supporting them into retirement comes down to open communication with them about their aspirations and plans. Formal retirement planning courses provide an ideal forum for both older people and their employers to focus on the options appropriate to their own workplace.

http://www.aviva.co.uk/media-centre/story/16967/older-workers-urge-employers-to-provide-more-suppo/

Abysmal knowledge about pensions

It has always seemed to me remarkable that our knowledge about many key aspects of life – whether financial, social or health-related – has to be obtained virtually by osmosis. Financial planning, parenthood, divorce… where do we learn what we really need to know about these and many other vital experiences? The answer, in respect of pensions at least, is that many of us don’t and either exist in a state of ignorance or just muddle by.

A worrying report in today’s Daily Mail, and no doubt elsewhere, highlights that the government is considering taxing the state pension at source. For now that’s not the worrying part, as experience shows that there is often (usually?) a huge gap between media scaremongering and what eventuates.

No, what did alarm me is that the article highlighted that research has shown that only four in 10 elderly people know the state pension is taxable and many discover it only when HM Revenue and Customs tries to claw back the tax later.  How can this have fallen under their radar?

Apparently about 5.6 million of Britain’s 12m pensioners pay tax, while the rest have an income below the tax-free threshold, £10,500 for 65- to 74-year-olds and £10,660 for those 75 and over.

John Whiting, tax director of the Office of Tax Simplification (OTS), which advises the Treasury on tax matters says bringing the state pension into the pay-as-you-earn system could reduce bureaucracy and would remove the need for around 1.6 million pensioners to fill in self-assessment tax forms.

Well yes. But let’s hope if this comes about that some of the money that is saved is invested in mandatory workplace pensions and retirement training.
Read more: http://www.dailymail.co.uk/news/article-2127157/Granny-tax-2-Fears-elderly-hit-state-pension-set-taxed-source.html#ixzz1rdPMlnMp

Budget blues

It has always seemed to me a great pity that politicians and business leaders never seem to take the big and painful decisions at the right time – that is when times are good, rather than when times are bad and they are no longer in control of the process. Oh for a few farsighted statesmen rather than the short-termists we always seem to get, concerned only with their own immediate impact and survival.

And so it is now with the various measures being taken to deal with the issues surrounding a large and growing older population. The Budget just announced has come in for a lot of criticism, as they all do, in particular this time with regard to pensions and pensioners. But the concerns driving some of the current measures have been coming for decades and nobody was prepared to tackle them at the appropriate time. And so they have to be addressed now, at a time when any measure is going to be painful for someone, whether it is the young, the “squeezed middle” or the older population. In the end the pain will have to be shared around and we can only hope that such pain will, in the long run, be less here than in some other countries.

So let us stand back a moment and look at the bigger and longer term scenario, one that will quite definitely not go away of its own accord. There are certain things about matters related to demographics – they have the weight of numbers on their side and you can see them coming a long way off.

The first thing is that the population as a whole is living much longer than it used to. Living longer is generally a good thing, provided we can address the issues surrounding health, personal financial well-being, and a reason to get up in the morning. Living longer is something that will affect everyone, the young, the middle-aged and the elderly and so measures must be put in place to prepare everyone for later life, in an environment in which government funding is not a bottomless pit. After all, the money comes from us – we give with one hand we take with the other.

Therefore living longer (a good thing) implies working longer and/or saving more. And so state pension age will have to increase alongside increasing longevity, not only for financial reasons but for an individual’s feeling of value and worth and for the social interaction work brings. With this must come the ability to stay in work longer, in terms of health, the work environment itself and the right to continued employment.

And for those with some way to go to retirement, saving must be seen as a worthwhile venture. For some years there has been a powerful lobby suggesting there be an adequate universal pension for everyone, removing the excuse that saving is not worthwhile because with means testing later on you might as well spend it now rather than save it. This is being put in place. What we now need are some worthwhile savings mechanisms. They too, hopefully, are coming.

It is quite possible to argue about the fairness of the transition arrangements, for all sectors of the population not just pensioners, but directionally I believe that we are now beginning to see some progress.

 

 

 

 

Time to get real about retirement

A press release which recently arrived in my inbox highlighted that millions of Brits are dreaming of a retirement they may never get to experience.  

Research with 2000 British adults conducted by Benenden Healthcare, a mutual healthcare society, found that most Brits have an idealistic vision of their golden years where they’ll enjoy glorious sandy beaches, rounds of golf, and glamorous city breaks on at least four holidays abroad a year.

The study determined how people expect their retirement to be, before measuring those expectations against results of those already retired. It found dreams of an ideal retirement have convinced 30 per cent of Brits that their standard of living will improve dramatically once they’re able to retire.

The ‘ideal retirement v real retirement’ report found that along with golf club memberships and exotic breaks people are also dreaming of countryside walks, regular spa visits and new cars. But in reality, just one in ten are saving enough cash to support a comfortable retirement with the reality for many being that retirement will be just as much a struggle as our working years – if not more so.

Despite the majority of those interviewed expecting a comfy and relaxing retirement, 45 per cent admitted they thought they weren’t saving enough for the future with, remarkably, a fifth saving nothing at all. Indeed, three in ten people confessed to a ‘live for the now’ approach to money, with little thought given to their pension or later years because ‘there’s plenty of time yet.’

But people currently in retirement were less carefree in their assessment of retired life – less than a third said they can afford the holidays abroad that were a key feature of the ideal later life.

Lack of time, money and health issues are also preventing retired people from carrying out what they want to do. Furthermore, 35 per cent claim that retirement has seen their standard of living decrease notably and a tenth said retired life was not at all like they’d pictured it would be.

While none of this is surprising in relation to our knowledge about the reality of retirement today it does underline how little this appears to be impacting younger people’s attitudes and beliefs about later life. At a time when we are also considering our attitudes towards and treatment of older people, which in general is abysmal, it’s time that people got real about facing up to some of the horrors that might come their way.

 

 

 

 

SOS – Financial education needed in the workplace

A recent joint report by the National Association of Pension Funds (NAPF) and the Pensions Institute (PI) at Cass Business School has found that half a million people retiring each year are being dramatically short-changed in terms of their total future pension income because of overwhelming obstacles that prevent them getting the best deal.

When they retire, people in the private sector saving in a ‘defined contribution’ pension – now the most common form of company pension scheme – use their pension pot to buy an annuity from an insurer. This gives them a regular income and is a one-off, irreversible decision that sets the size of their pension for the rest of their life.

According to the report, fewer than one in five people have the financial know-how needed to pick the right annuity at the best price. The rest lack sufficient understanding of factors like interest rates, inflation and longevity, and need some form of advice. And those savvy enough to ‘shop around’ for the best rate struggle to do so because the best shops are not signposted. It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds.

The report also uncovered evidence of sharp practice and murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

David Blake, director of the Pensions Institute at Cass Business School comments: “This report is a wake-up call to the pensions industry, the government and the regulators. If the annuity system is not radically overhauled, employees in defined contribution schemes in the private sector will continue to suffer massive detriment and the government’s new auto-enrolment regime will fail the very people it aims to help secure financial independence in retirement.”

However, more immediately it concluded that people get “too little support” from employers or providers when making a decision about their annuity – often they get nothing more than a leaflet pointing them to a website with a postcode-based search engine.

As ever, the workplace is the best place for providing education and knowledge – whether related to pensions, annnuities, general financial planning, health, or myriad other topics. Good employers will hopefully rise to the challenge in supporting their employees to reap the best rewards from a system that most have paid into with the best intentions and trust in future rewards.

And for those who are younger, financial education is definitely needed about the options available, aside from pensions and annuities, to provide for future financial needs and retirement.

For more: 

http://www.napf.co.uk/PressCentre/Press_releases/0176_Savers_left_short_changed_and_bewildered_by_unfair_annuities_system.aspx

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.