I was listening to a podcast from MoneyBox called the Death of Retirement the other day with a growing sense of annoyance and, possibly, outrage. There were a variety of reasons for this, most of them boiling down to ignorance, most of it my own.
For a start, the podcast kicked off with a panel of “experts” interviewing a “millennial” who was in her early twenties and was looking for some advice on pensions, as she suspected she wasn’t saving enough into her plan at the moment.
“How much do you currently contribute?”, asked the kindly host.
“Well, I looked at my last wage slip and I’m putting in nine pounds a month”.
“FFS!!! Are you raving mad!!!???”, screamed the host. “You’re heading for abject poverty!”
Oh sorry, that wasn’t the host screaming. It was me. You see, the host and panel, in a fantastically polite and paternal BBC fashion, were far too sensitive and non-judgemental to make any such uncontrolled outbursts. Instead, they gradually tiptoed toward the suggestion that maybe, possibly, depending on her circumstances and an uncertain future, this might not be enough.
“Do you know what your employer is contributing?”, gently prompted the host.
“Well, unless it’s about five hundred quid a month I’m totally screwed”, joked the young girl. No, sorry, that was me again, and I wasn’t joking.
When it comes to this stuff I think I’m in a state of willful ignorance, because I kind of assume that, by now, surely, 99% of the country are aware of the financial catastrophe that old age is going to bring with it and are taking steps to avoid it? Okay, maybe not 99%, but 75% must be?
Alas, a quick Google search on “What is the size of the UK average Pension Pot?”, pours cold water on this notion. It’s currently sitting at 50k, according to the This Is Money website. (Pause to remind myself that this is the TOTAL POT and not what it’s going to give as an income every year). A 50k pension pot currently pays an annual annuity of about £2,500 a year.
I’ll admit, I find this frightening, but then I do live a rather gilded financial life. Many people have to survive on incomes of around £10,000 a year so, if you combine a 50k pension pot with the state pension, then you’re heading for that amount. Plus (I believe) there are other government support mechanisms available to supplement this income, such as housing benefit.
This is a good thing, I think. I want to live in a society that provides a social security net for all, providing everyone is contributing in a fair manner. (I did try to expand on what I would define as “fair” in this context, but that turned into a bit of a rant that included dreaded words like “Brexit” and “NHS”.)
So, setting a lot of political issues aside, I see “fair” as being a bit of “give and take”. You put something in as does your employer and the government. That’s pretty much what we have at the moment. It’s not a perfect system but it’s better than nothing. The key, for me, is the first part of the sentence, “YOU put something in.” Part of the reason why a lot of people are heading for a State Pension and very little else is because they failed on that first step – they put nothing in.
The BBC seemed easily enough to find young people who are still bridling against the notion that they need to contribute to a pension. “I just don’t trust pensions”, says one. Another “Just can’t afford it”, and objects to the fact that her employer can decide where her pension money goes. Against this, perhaps the young millennial putting away nine pounds a month is to be congratulated – at least she’s doing something!
How can this situation be changed? Well, if you listen to this series of podcasts, it seems that enrolment of employees in company pension schemes has been a success. There clearly needs to me more of this kind of thing. But, for me, the pensions “industry” has to become much simpler, transparent and fair. And it needs to have the same attraction that investing in property has. It should be publicised as being just as safe and just as beneficial as having a roof over your head. But, at a nine quid a month contribution to a pension, the roof will be falling in as opposed to holding up.