Last time I was visiting a friend in the south of England, we naturally drifted towards discussing our pension provisions. Well, we’re both academics, women in our 50s, and we learn through experience that sound money management needs the attention of a good woman. While we were busy discussing pension contributions, final salary schemes and whether or not to buy additional years the doorbell rang and the owner of the only daft border collie I’ve ever met walked in.
A woman of a similar age, she looked brightly around; my friend wishing to engage her in our conversation told her that we’re discussing pensions. Her reaction was:
‘Pensions? I don’t have one of those.’
Now, you can imagine how well this sat with me; the transformation from a scholar to personal finance blogger was instant and seamless.
‘What do you mean you don’t have a pension?’ – I asked.
‘Well, I work freelance; have done for many years now and never had any money left to start a pension.’ – she replied.
And you know what? This woman is not alone; despite the regulation that came into force last October and introduced auto-enrolment in employers pension schemes there are many people in similar position. Only today, The Telegraph published some data according to which the number of people in the UK who are in occupational pension scheme is at a 60 year low – down to 8.2 million or 35%. The same study found that only 32% of women and 35% of men in the UK make contributions to a private scheme to top up their workplace scheme.
Interestingly enough, the article implies that the main concern is that people will have to work later, well into their 70s. Which I am not sure is the matter to be concerned about for two reasons:
a) If ‘our 50s are the new 30s’ (and I sure hope this is true) than ‘our 70s are the new 50s’. I hate to break it to you guys, but one day we have to get there. When people retired in their 50s they were not really expected to live beyond their late 60s. Now the life expectancy in the developed world in mid-80s and raising. Work keeps us engaged and feeling useful so what exactly is the problem working into our 70s?
b) There are people voicing doubt that there will be jobs. But remember that we bemoan our aging societies? This only means that the age structure is the one of an inverted ‘cut’ pyramid and assuming that jobs don’t continue to contact there should be no problem with people working later in life.
I believe that there are very serious issues with pensions – or the lack of pension contributions from a substantial part of the population – but these are not the ones proclaimed by the media. The way I see it is the following.
Problem one: not making ‘appropriate provisions’
Whether people work till later in life or not one thing is certain: there comes a time in our lives when we need to stop working but continue living. It is very likely that the people who didn’t manage to put anything ‘on the side’ for retirement when they were in their 30s, 40s and 50s are not going to do it when they are in their 60s and 70s.
Hence we are back to square one: these people need some provision for retirement – the one of old infirmity rather than the glory of ‘early’ retirement. The problem is in making appropriate provisions rather than in having to work later in life.
Points to consider:
- If you have not been making provisions for the time when you won’t be able to work start now; no delays, no excuses. It doesn’t matter how old you are or how much you can put on the side: just do it!
- Don’t dare tell me that you don’t have pension but you have a house: for the last time, your house is not an investment, it is not an asset. It is a possession which means that you’ll always need somewhere to live; if your house is increasing in value so are the other houses and there is a limit to downsizing.
- Think very carefully where you’ll put your money and what you store. Sometimes an ‘appropriate provision’ may be learning a new skill.
- Living with your children may sound like an option but it isn’t; except if you really like being ignored and resented (which is an expected reaction since the end of patriarchy and the advent of the nuclear family).
- When I was last in Bulgaria a 70 odd years old woman approached me to beg; there is nothing more sad than that. She asked me for one lev (local currency) I gave her twenty (£12/$17): I just hope she managed to get a meal. I didn’t solve her problem.
Problem two: what ‘appropriate provisions’?
Later, there are few options that can be considered ‘appropriate provisions’. Low interest rates, inflation higher than interest rates and volatile stock market discourage traditional provisions as personal and stakeholder pensions.
In fact, what I found most discouraging about The Telegraph article were the comments where people voiced their scepticism regarding the performance of different pension funds. Generally the message was:
‘Why bother if it is likely that you get less than you put in? Live today and hope that you won’t care in the distant future.’
Incidentally, this is our experience as well; John contributed to a private pension fund for about a decade and when we last looked at it the money was less than his contributions. This, however, didn’t make us stop making provisions; we just shifted the focus of what we are looking at.
Points to consider:
- It is almost always worth it to contribute to an employer’s pension scheme. Check the conditions since these may vary but generally your contribution is matched by the employer.
- Remember that what you need in your old age is not pension but income. What I mean to say is that pensions are only one specific instrument to ensure that we have some income when we no longer sell our labour.
- Look at ways to build alternative income streams. This may by building businesses (and automating these), learning and developing a new skill or making more secure investments.
What pension provisions have you made/are you making?