Pension Time Bomb is ticking


Article by Phil

We are increasingly worried about the prospects of the younger generation when it comes to their retirement.

The days of the old final salary pension schemes have all but disappeared, unless of course you work in parts of the public sector.

Almost all workplace schemes are now private pension schemes and there is little chance that today’s pension savers will be able to afford the contributions needed to match their parents and grandparent’s old final salary schemes. Which means they will be undoubtedly have less pension income in retirement. This is despite living longer and of course receiving their state pension at a later and later age.

When you combine this with younger people’s attitudes to investment you start to realise that there is a time bomb on the horizon.

Latest research from the Nursery Investor Index shows that the under 35’s consider themselves the DIY Investing generation. They consider themselves “open to risk” but equally “confused” about investing indicated by their support of cryptocurrencies.

The combination is – No more final salary schemes + higher contributions to get less benefits + not taking specialist advice + living longer and a later retirement age + being attracted by online schemes like cryptocurrencies = less money in retirement.

Did you know that in the UK the basic state pension is only 25% of the average wage, unlike 40% in most of the EU for example.

But it’s not just the younger generation facing a bleak retirement, Generation X is also under threat (those born between 1965 and 1980). They were generally born too late to get into the housing boom of the 80’s and 90’s, probably didn’t access final salary pensions, started having children later and are often looking after their ageing parents. It’s estimated that over a third of Generation X will have a shortfall in their pension income when it comes to retirement.

But what is the solution. Well, the PIMFA (Personal Investment Management & Financial Advice Association) suggest that there are three things required:

  1. Deal with the affordability of advice through workplace schemes for both pensions and savings
  2. Push the concept of saving much earlier
  3. Make more information about savings more readily available.

All these sound nice but they don’t really get to the heart of how to get more money into and out of your pensions.

Not a great picture for future generations.

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