UK Pension provision: A disaster in the making?

Wednesday, 27th May 2009 17:17 - by Resident IFA

I caught the BBC News at 10 yesterday. It had a feature on the impending ‘Pensions Crisis’...good copy /airtime, don’t you think?! Regardless of media hype and titles, it is unfortunately very true. The simple fact of the matter is that, more and more, we are living longer. This means that the balance between those working and paying National Insurance contributions and those relying on them for State benefits/Pensions is shifting. I am sure I saw a statistic (damn lies and...!) recently to the effect of there being more people aged over 65 in the UK than there are teenagers, hence the problems that are being stored up for the future and will soon become all too real. I once heard a description to the effect that even today, the money that comes out of my tax bill jumps straight across to an OAP’s State Pension...pretty sobering stuff as to the knife-edge equation the country now faces. The BBC feature mentioned that 50% of 21-30 year olds and 45% of 41-50 year olds are not saving for their retirement. I appreciate that it is easier said than done – especially in the current economic climate where company pensions are rapidly becoming a thing of the past – to put aside money over and above the day-to-day cost of living and expenses. The ‘cost of delay’ is also quite shocking: If a 30-year wants a £10,000 pension income, they will have to pay in £300 each month and a 50-year old would have to pay in £1,000 each month! So, best we all start to plan and contribute as early as possible. The other benefit of a Pension is tax relief. If you put in £80, the Government (HMRC) adds £20 in the form of basic-rate tax relief. Higher-rate taxpayers can reclaim the other 20% via their tax return. This extra input can really help with the growth of the fund. On retirement, 25% of the fund can be received as tax-free cash into your bank account, the other 75% used to provide a taxable income (annuity) for the rest of your days. Some, of course, reject the lack of access they have to their own money until at least age 55, then having to abide by the aforementioned lump-sum/income regulations. I work with Pensions on a regular basis, thus seeing the benefits of a more comfortable retirement via a committed approach to planning in this way...however small the contributions may seem. I appreciate that it is on the verge of condescension to ask the question “Would you be happy to live in destitution and penury in the last years of your life?” I thought not. At least we can take comfort in the thought that we can control and help avoid this situation, budget and stockmarkets allowing... Until next time...