Back in 2013, banking giant HSBC released a report exploring the state of the global pension market. This sought out more than 15,000 respondents across 15 countries, while its results revealed that while the average retirement length was 18 years most pensioners only had the means to fund 10 of these without seeking out gainful employment.
Not only have these circumstances not improved in the three years since, but they have arguably gotten worse. With people working for longer and pension freedoms being restricted as a response to global economic uncertainty, the current generation may find that the dream of retirement is exceptionally difficult to realise.
The Main Issues and How Will They Impact on Society?
The latest blow to pensioners came during Chancellor Philip Hammond’s autumn statement, which revealed that the so-called Money Purchase Annual Allowance (MPAA) would be cut from £10,000 per annum to just £4,000. This is the type of damaging change that has typified the government’s approach to pension planning during the last term in office, as previously implemented measures are countered and a lack of long-term vision remains. Then we have the accelerated increases in state pension age for men and women alike, with males now expected to work into their seventies and the state pension age for women in the process of rising from 60 to 65 by November 2018.
These issues are damaging enough by themselves, but they have been exacerbated by the government’s constantly changing ethos and lack of organisation. This has partially created a climate through which citizens are unable or unwilling to save, with an estimated three in 10 Brits aged between 55 and 64 currently without any savings at all. Younger citizens are also failing to save adequately, highlighting the growing apathy and inequality that impacts on different demographics.
So what exactly is the scale of this crisis, however? In simple terms, it is currently estimated that you will need to save up to 15% of your lifetime earnings merely to avoid running out of funds in old age. This is a huge amount, particularly when you consider the minimum contribution (including employer input and government tax relief) accounts for just 8% of your income. This, when aligned with real wage stagnation and an incrementally rising cost of living, is creating a scenario where the current generation of workers may simply be unable to retire without incurring significant hardship.
The Last Word: A Troubling Time Ahead?
Make no mistake; while the current pension crisis could well create a generation that must continue to work and save even into old age, it may also have an impact on future generations. Given that citizens are being forced to work along and beyond the standard retirement age (which is also being hiked incrementally), there will be a dearth of jobs for younger members of society who will subsequently find it even more difficult to save and plan for their futures.
While we can all look to earn and save more during our lifetime or seek out financial planning experts like Tilney to help manage our wealth more effectively, there is no doubt that wide-scale pension reforms are required to drive sustainable change. Otherwise, we will become trapped in a vicious cycle of austerity that makes retirement an increasingly distant and fanciful dream.