Archive for the ‘State Pension’ Category
Baby Boom or Bust – the financial tsunami
As the first wave of baby boomers turn 65, the number of people in the UK approaching retirement is growing at a pace never seen in our history. 
However, the problem is, for many of them, their bank accounts aren’t.
The crush of the economic downturn – which saw many people lose some of their life savings – has forced some people to work several more years than they originally hoped for when they were looking at their retirement plans.
Others simply haven’t saved enough of a nest egg over the decades to live comfortably in what should be the best years of their lives.
Just under half (45%) of employees in the UK don’t have a pension plan. The Office for National Statistics latest Pension Trends publication states that in 2007 about 9 million people were members of a company pension scheme and about 7 million were paying into a personal pension plan. The UK working population hovers around the 29 million mark. So that means only 55% are using a pension plan to save for their retirement.
A Financial Tsunami?
Baby boomers may be reaching their retirement in waves, but a financial tsunami could be in their wake.
New research by the Oddfellows Friendly Society and the Centre for Retirement Reform (CRR) into understanding of retirement income has highlighted a worrying knowledge gap among those approaching retirement.
The survey – which was conducted among 1,200 Oddfellows members aged between 55 and 65 – found that on average, £25,000 per year was considered enough to provide for a reasonable standard of living.
Nearly 20 per cent of those yet to retire either didn’t know or didn’t answer when asked how much they would need to save to enjoy the post-retirement lifestyle they want.
More worrying was the fact that most of those who said they did know actually underestimated the figure. The average answer was £380,000 when it’s closer to £500,000. According to the Pensions Policy Institute the average size of pension fund used to buy an annuity was £24,330. Unless you have a company pension to bridge the gap, or have accumulated 20 of these “”average “pension plans, it’s likely you’ll miss the target.
Clearly if these baby boomers want to maintain the same standard of living, it’s going to be difficult. It’s not an immediate problem, but it’s a problem that’s going to creep up on us in the future.
One of the effects of the prolonged economic slump is that many workers aren’t retiring at 65 and are now working for several years more than originally planned just to comfortably exist. With the removal of the Default Retirement Age making it more difficult for employers to justify retiring an employee some people who are currently working may never retire.
So what’s the answer? 
Is there one? In my previous post I wrote about my concern that we were sleepwalking towards a very poor old age.
The government is taking some action by forcing us to save for retirement with automatic enrolment into workplace pensions. However, you’re going to have to go some to build up £500,000 of a pot by the time you retire.
Many people have grown up over the last few decades with no real saving mentality or habit. Some are even largely excluded from financial products – sometimes voluntarily. Brian Pomeroy – who is the Chairman of the Financial Inclusion Taskforce – said recently:
“The single thing which is most likely to make someone who is really distrustful of the banks open a bank account is wanting a Sky TV contract.”
At the other end of the scale the boom in house prices over the last twenty years has lulled people into seeing the equity in their house as a means of financing their retirement. However, in words of one campaigner for pensioner rights “You can’t eat the front doorstep”.
Realistically there is no magic bullet. As a nation I believe that we have to:
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Educate our children about the need to save from an early age.
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Get finance into the school curriculum.
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Realise that the government isn’t going to support us when we retire.
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Make financial products simpler and more straightforward.
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Make our pension system easier to understand for the man in the street.
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Plan ahead. Having a financial roadmap helps us navigate life’s ups and downs.
Most of all it’s really simple – we’ve all got to save long and save hard for our future.
Removing the Default Retirement Age– 4 things to worry about
We decided that we would take a break from writing about NEST and auto enrolment and focus instead on an issue that will one day affect us all – our retirement date.
The announcement today that the Government are pushing ahead with the removal of the Default Retirement Age has caught many people on the hop. If you feel inclined the Department for Business, Innovation and Skills (BIS) have published today the results of their consultation exercise. It makes interesting reading. To save you rooting around the web site here’s the link.
Knee Jerk?
It’s only three months away. 
That’s not a long time for employers, insurers and everyone else to consider what they need to do to comply with the new rules. Considering the forthcoming rules to automatically enrol employees in a pension scheme have taken years to get to the current Pensions Bill three months is a very short crash landing.
In our experience when anything like this is rushed into implementation by the legislators it normally ends up being bad news. A little too much knee jerk reaction.
Workplace Benefits – Left in limbo?
The rush to remove the DRA has left many employers in limbo about what to do about the benefits they offer their employees.
Many offer life assurance and income protection to employees. These benefits are insured with insurance companies.
Typically the insurers will only offer cover up to a maximum age – 75 usually. Clearly if an employee could in theory work into their 80’s the risk of death or long term illness grows massively. We’ve have clients who have had employees working into their mid-80’s even before these changes.
If the cost of these benefits starts to soar employers may simply remove them to avoid having to carry the risk for those employees that they could not get cover for. Serious concerns were raised in the consultation that without some form of clarity the removal of the DRA could have a negative impact on employees of all ages.
The good news is that in the consultation paper the government recognised this and they’ve said:
The Government recognises that there is a risk that employers may cease to offer insured benefits as a consequence of the removal of the DRA, and will therefore introduce an exception to the principle of equal treatment on the grounds of age for group risk insured benefits provided by employers.
The question is of course when and how will insurance companies react during the period when we are all in limbo. We have been in discussion with insurers about our own clients already and its really difficult to get any clarity.
Let’s keep our fingers cross that the government walk the talk – and soon – so we can all move forward with some clarity.
ACAS Guidance
The government are looking to ACAS to help employers with the compliance aspects of the change to the DRA. They have issued a guidance booklet that you’ll find here.
In relation to the insured benefits we considered above the guidance booklet from ACAS states:
Some employers provide group risk insured benefits (including income
protection, sickness and accident insurance, as well as private medical
insurance) for their workers. These benefits will be exempt from the principle of equal treatment on the grounds of age so that it will remain possible for employers to cease to provide or offer these benefits once a worker has reached the age of 65 or the State Pension age for men, even if he or she decides to continue working beyond that age.The age at which group risk insured benefits can be withdrawn will increase in line with increases to State Pension Age.
Far be it for mere mortals like us to question this but as far as I am aware I have yet to see any evidence of the exemption. The clock is ticking!
Bursting at the Seams?
Our worry about ACAS is that one if its other responsibilities is to mediate in employment disputes – including those that are due to be heard at an Employment Tribunal. With the huge amount of redundancies that have taken place in the current economic climate ACAS already have their hands full.
Last year there were 236,000 tribunal claims, up 50 per cent in a year – and nearly three times the number just five years ago. It’s clear to us, and from the experience of our clients, that the resources of ACAS – certainly in this area – are stretched. With this extra responsibility – and a very short timeline – is it a step too far? Especially as like most bodies the funding ACAS receives is bound to be under close scrutiny.
One things sure from all this is that there’s some work to be done by employers and their advisers over the coming months. If you have any comments about the removal of the DRA and the points raised in this post we’d love to hear from you. Leave a comment below.
The Universe will provide!
Mark is a client and friend of mine I have known now for probably ten years. I’ve learned a lot from Mark over these years.
One of Mark’s mantras is that “the Universe will provide”. In other words do all the right things in life and things will happen for the good – often out of the blue. And funnily enough they do! Mark has held some really good positions in various companies in the horticulture sector At times things haven’t worked out but Mark’s positive attitude has ensured that things fall into shape. It’s also a self fulfilling prophecy. It’s a bit like Gary Player’s often quoted retort to a journalist when he said “the more I practice, the luckier I get”.
Mark is one of the people that I make a point of speaking to when I need an injection of positivity. Sometimes, in the early stages of thinking about leaving behind the well paid job I had doubts, insecurities, worries about it all. A phone call or lunch with Mark is all that it takes to inject a positive outlook and for me to see things with added clarity and vision. Everyone should have someone like Mark.
Thinking today about Mark’s mantra I felt a sense of worry. Not for my own future but for that of a whole generation of the UK population. The worrying thing for most people in the UK – and this cuts across age, sex, income – is that they believe the Universe (or more accurately the Government or some mythical benefactor) will provide for them. However, unlike Mark who actually puts in an enormous amount of unseen effort (think swan under the surface here) these people are doing little or nothing. And that’s worrying.
As a nation we are sleep walking towards a very poor old age with the prospect of continuing to work till we are all well into our late 60’s. The latest Government changes to the State Pension Age just underline that. Compulsory pensions when they come will simply lull most people into a false sense of security as to what they will get when they retire. More of all this in later posts.
Meanwhile, I’ll carry on worrying and hope that the adage about the cobbler’s children having the worse shoes doesn’t apply to financial planners.