By Michael Baxter 15 Nov 2010 [0 Comments | 428 views]
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Prepare yourself for a shock. Apparently, people over 50 are not saving enough. One-third of those over 50 are not bothering with pensions and one-fifth have mortgage debt, or so says a report from Saga Group.
Dr Ros Altmann, who is the Director General at Saga, said: “Even among those closest to retirement, there is a lack of trust in pensions, as a third of workers are not saving in a pension. People have clearly lost confidence in pensions and the situation is deteriorating.”
Apparently, one in five over-50s are still in debt, with mortgages to pay off. Dr Altmann says: “If they have no pension savings to fall back on, they will be heading for retirement poverty. Together with those who have no pension savings, there is a serious risk that up to 3 million people will have nothing but the State Pension to survive on in retirement.”
The Saga warning continued, saying; “For the over-50s, saving in a pension scheme is often just not worthwhile, because they are caught in a trap with state benefits taking away their private pension. The State Pension is so inadequate (a full Basic State Pension is just £97.65 a week) that nearly half of pensioners end up needing means-tested Pension Credit and other benefits in retirement. However, if they claim these benefits, they will lose at least 40 per cent and often 100 per cent of their pension income. That makes it very difficult to advise people to save in a pension, because they risk merely saving to replace benefits they would otherwise receive.
“The Government’s recent apparent proposal for a flat rate pension of at least £140 a week for all future pensioners with a full National Insurance record would remove this problem of means-testing and make it safe for the over 50s to save in a pension. This kind of radical reform is essential. Without it, we cannot hope to ensure private pensions work properly to deliver extra income for retirees.”
Saga is right, of course, and no doubt you already know it’s right. But the problem is more complicated than we are being told.
First of all, for some people over 50, saving is not possible. This may be especially true if you have kids at university and your income is above the very modest level at which they cannot get means tested loans.
Secondly, one of the main reasons why we have a pension crisis is because the stock market has performed so badly. The FTSE 100 still languishes way below its 1999 all-time high. People who have been saving into their pension, only to see tiny growth in their portfolio, must surely be asking: “What’s the point?”
In the long term, stock market performance is correlated to economic performance. But alas, if we all do the sensible thing and save more, economic performance may deteriorate. This has been the fundamental problem in Japan over the past 20 years.
Sorry, it may not be palatable, but the only way the pension crisis can be fixed is by us working until we are a lot older than we had previously anticipated, in conjunction with the UK becoming a more dynamic, and probably entrepreneurial economy.
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