The pension problem in the United Kingdom, and indeed the rest of the world, is not going away. A report from the independent Workplace Retirement Income Commission released today warns that, shockingly, almost three quarters of private sector staff in the United Kingdom will be unable to adequately exist when they retire due to inadequate savings and an inefficient pensions system. Not surprisingly, the report, written by the former chairman of the Treasury select committee, finds that the elderly of the future will retire on significantly reduced pensions. In brief, its message is that more people need to start saving now if they are are to have a comfortable retirement! Do you really need that new big screen TV? The Telegraph reports:
“A golden sunset is giving way to a bleak dawn,” said Lord McFall…The report lists a raft of grievances about pension provision. It points out that the value of pensions has been hit by the global recession, low investment returns, increases in household debt, drops in real incomes and low interest rates. It suggests that there is a lack of trust in the system and says that private company pensions are often opaque and confusing for workers. The report warns that workers must receive a better deal from their pensions if they are to bother saving for retirement. It also calls for an increase in minimum contributions to pension pots.
Last year, only 36 per cent of those aged between 16 and 64 were actively contributing to a private pension, the report states. Over the past 10 years, the proportion of men saving into a pension has fallen from 49 per cent to 38 per cent, while for women it has dropped from 36 per cent to 33 per cent. Lord McFall warned that although millions of workers would be enrolled automatically into workplace pension schemes from next year, up to nine million “may still fall through the cracks” by opting out. He said that a further five million workers did not earn enough to qualify for the auto-enrolment system, meaning that a potential 14 million people faced having an inadequate pension to live off. “In a rich nation such as ours, this is scandalous,” he added.
The problem of course is rooted in both rising life expectancy and fewer children to work to pay tax from which to pay future pensions. The Department of Work and Pensions is expected to publish statistics this week suggesting that some children born today can expect to live to 120. While this may mean more valued years with grandchildren or hitting balls on the golf course, if the retirement age remains where it is, it also means that in the future the community of taxpayers will have to pay the pension to people for many more years of their life. The Independent reported yesterday:
The coalition is moving the state pension age to 66 for men and women by 2020, but future changes could be linked to life expectancy. Iain Duncan Smith, the Work and Pensions Secretary, previously warned that “in a country in which 11 million of us will live to be 100, we simply cannot go on paying the state pension at an age that was set early in the last century.”
In the United Kingdom the government has debated forcing public sector workers to pay higher pension contributions and others have stressed the need for a stronger culture of saving. I have previously discussed on this blog proposals that we need to more readily accept older workers into the workforce who in many cases would like to continue to work but have trouble finding meaningful jobs. Other suggestions have been to support elderly people based on need and infirmment at any particular age on something more akin to a disability benefit. Needless to say, we as communities need to look out for all of the vulnerable in our society. As we move to a more ‘top heavy’ society with fewer young people, it will become more challenging to do so.