Retirement Planning

by on 04·10·2016

My friend is 40 and a chartered accountant and she has no pension; she says she can't afford one, but more interestingly she thinks she doesn't need one as she will have a State Pension. She is still paying off student debt, has a huge mortgage and her employer doesn't offer a pension scheme.  I don't think this is an uncommon scenario amongst those of us born in the Thatcher years or later.  I have no idea how we go about fixing this, but I know we need to do something big.

With the prospective introduction of the Pensions Dashboard in the next few years, which is based on the idea of helping people collate all their past and present pension savings, this could be an opportunity to really push the idea of pensions to the younger generation (is 40 really young? I live in hope).  Various Governments have tinkered round the edges over the last couple of decades, and with the introduction of Auto Enrolment more people will now have pensions, but it is clear people are not saving anywhere near enough and not starting soon enough. And they have no idea how much they need to live on in retirement.

How about starting on the day you are born?  Child Trust Funds were a half-hearted attempt to get us all saving more for our children, but placing this in the hands of the market and asking people to choose cash or investments was perhaps too much.  How would things change if every one of us had access to a Pensions Dashboard and were given a NS&I sponsored pension on the day we were born. This could be built up with a starter amount of say £100, topped up by the Government each birthday, and as soon as we started earning a proportion of our salary would be automatically deducted and added to our pension plan, with the added benefit of some level of tax relief. If their pension is available online for them to watch as it grows, with calculators to show if you have enough to retire, alongside guides and videos to educate people, would this make saving for retirement a normality?

I have little confidence that the State Pension will look the same as it does today by the time I retire (at 67 - so far away!) and with various groups lobbying the Government to merge income tax and national insurance, I wonder if this is what our children will end up with?

Whilst this all may sound a bit Jeremy Corbyn, there will always be space for more complex pension arrangements for higher earners and for those wanting control and choice over where their funds are invested. 

Our children will probably spend much of their lives in debt, and given the choice of where to spend their money would probably far rather have it in their hand today than have ten times as much in a pension at some distant point in the future.  Anyone who is familiar with the Stanford University marshmallow experiment will know that delayed gratification is not something all of us are built with; compulsion would be the only sensible way to ensure everyone at least tries to save enough for retirement.