The Press and Journal (Aberdeen and Aberdeenshire)
Don’t rely on the state for help when it comes to your pension
Today’s golden age of pensions could be masking problems for future generations of retirees, says Steven McKnight, principal partner of St James's Place Wealth Management
A new report from pension firm Aegon shows that average pensioner incomes have almost doubled in the last 20 years, rising from £155 per week in 1995 to £297 in 2015.
Even more remarkably, the weekly incomes of pensioners are today only 7% behind those of the working population.
Faced with high living costs and mortgage commitments spread over longer timeframes, 92% of those aged 45-49 and 89% of those aged 50-65 report that their ability to save for retirement is restricted, despite these often being peak-earning years.
On top of this, very few private sector employees are still building defined benefit (DB) pensions that promise a generous and highly predictable income in retirement.
These have been replaced with defined contribution (DC) schemes that pass both investment risk and the onus for decision making on to the individual.
While Theresa May has reaffirmed the pledge (made in the Conservatives’ election manifesto) to maintain higher-thaninflation rises to the state pension, the commitment only stands until 2020.
The mechanism, known as the “triple lock”, increases the basic state pension each April by the higher of the growth in average earnings, the Consumer Price Index (CPI), or 2.5%. Opponents claim that it is ruinously expensive at a time of scarce public money.
Furthermore, Baroness Altmann, former pensions minister, believes that the policy has outlived its purpose. “The triple lock is a political construct, a totemic policy that is easy for politicians to trumpet, but from a pure policy perspective keeping it forever doesn’t make sense,” said Ms Altmann.
The fact that today’s pensioners are wealthier than ever before also throws into question whether it is at the ex- pense of the generations coming up behind.
Young adults, in partic- ular, have suffered years of stagnating wage growth, rising unemployment and low rates of home ownership, while at the same time paying for pension spending promises through taxation. Automatic enrolment has been a success in getting millions starting to save more towards retirement through a workplace pension, but in truth, most people still aren’t saving nearly enough to give them the standard of living they hope for.
Individuals in that position have four choices: increase their pension contributions; take more investment risk; push back their planned retirement date; or, finally, reset their expectations of wealth in retirement.
The impact of delaying those decisions could be huge, but taking swift action could ensure your living standards are maintained at the levels enjoyed by many pensioners today.