Pensions Minister Steve Webb found himself on the wrong end of some fairly dramatic headlines recently when he suggested that those entering retirement should be given a rough estimate of their life expectancy, writes Tony Watts.
So is that just sensible advice… or a step too far? And if that is the language now being used, should we all be worried about the future of pensions?
Of course, opinions may well have been coloured by the news filter through which you read the story.
“Pensions bombshell: Government to tell retiring workers when they’ll DIE to stop them blowing cash after Budget shake-up,” screamed the Mirror.
The Telegraph, on the other hand was a far more sober affair…
In search of guidance, I posted a debate on the “Later Life Professionals” group that I manage on Linked In. Opinion was (as ever) universally informed and interesting, but distinctly divided. Some thought it simply sensible to share information that actuaries already use when considering how good a bet we are when offering annuities. Others found it patronising: surely we’re old enough and sensible enough to work out for ourselves how long we’ve got to make our pensions last…
Perhaps the truth is somewhere in between. Yes, it’s a practical consideration that we all ought to take on board when planning what is, after all, the rest of our life. But do we really need to be told that?
I suspect that, while many people already have a firm idea of what they need to do ahead of retiring, and the consequences of not doing it, others will have their heads stuck firmly in the proverbial sand on this one.
After all, the reason Steve Webb put that idea out there was to raise awareness around the fact that most of us going into retirement without enough to last more than a couple of years. The average pension pot, apparently, is £30,000…
This has to change. For a start, surviving on a State Pension is just that. Surviving.
What’s more, even a State Pension, as pitiful as it is, may become unaffordable if there are too many pensioners compared to too few taxpayers.
The country (for that, read future generations of workers and taxpayers) are going to be really up against it in the decades to come, funding the pensions of a rapidly growing number of people as well as increasingly overstretched health and care systems.
And before someone raises the argument that those retirees have already paid their dues into the system, remember that their money was spent on supporting the last generation of pensioners.
So how worried should we be?
Let’s not forget, we have a society and government that was described – just over a year ago – as “woefully unprepared” for our ageing society. In the wake of the Government’s response to Lord Filkin’s report, that descriptor was changed to “wilfully unprepared”.
But I think I’d sooner be worrying about pensions than funding healthcare. Of all the departments in Government, Pensions have been one shining light – doing their best to turn the oil tanker around.
In the few short years he has been in post, Webb – quite possibly the brainiest politician we have – has introduced auto-enrolment and released future pensioners from the tyranny of annuities. He’s helped current pensioners with the ‘Triple Lock’ and future ones with the flat rate pension.
There will be plenty that will argue that it’s all too little and/or too late, but it’s light years on from where we were.
The challenge we face is that large swathes of people have lost faith in pensions, adhering to the perspective that it’s pointless to save… because if you do have something tucked away, that will deprive you of benefits and State support if you need care.
Self-dependency, which defined the generations that went through the Second World War, has been radically eroded.
Many more, of course, in our zero hours and part time working society, bring home earnings barely above the ‘rub along’ level – with little or no scope for saving.
So look ahead to the amount it will take to fund retirement, and you see that element taking up an ever-larger share of the sums set aside for welfare. The ‘elephant in the room’ of an ageing society has been ignored for decades. Chickens will be coming home to roost over the next few decades.
The only options to fund future generations of pensioners are:
1 To increase NI contributions and put part of them away to grow – and not just use them to pay today’s pensions. Affordable for some, but not for all.
2 To delay substantial numbers of people from taking retirement, or boost retired people’s income through part-time working. Possible/desirable for some, but not for all.
3 Develop new ways to utilise the assets built up by retired people – including more flexible equity release. Possible for some, but not for all.
4 Provide earlier advice and guidance on financing retirement – including a mid-life career review – helping those in their 50s to plan ahead. Obvious and sensible, so probably a non-starter.
5 Alongside that, we need to ensure that the personal savings and pensions that pensioners rely on provide sufficient return to stop them eating into their capital. Not easy when interest rates are “rigged” to help borrowers and boost the economy.
In amongst all that, Steve Webb’s suggestion that we should factor in our life expectancy when planning our retirement seems small beer. Of course, knowing how long we ARE going to live will still be an uncertain science…
