europe -- uk
6
pensions international . june 2005
www.pensionsinternational.co.uk
The UK pensions crisis is a time bomb
waiting to explode. The phrase,
"running out of
money before
running out of life" quite aptly seems
to describe the position that millions
of people in the UK will be in prior to
their retirement.
Recent research from Mintel
1
indicates that one in three adults are
failing to save for the future making
a grand total of 16 million
adults within the UK who have
made no provision for their
retirement or any other
eventuality.
Surely this is
indication enough that
immediate action must be taken
to plug the enormous gap in the
pensions and savings market?
David Blunkett, in his new
role as Secretary of State for
Work and Pensions,
was
challenged at the end of May to
sort out the ongoing pensions
crisis, which his predecessors
had failed to tackle.
In response, Blunkett has called
upon the help of his parliamentary
colleagues, the financial services
industry and the general public to find
a solution to help close the multi-
million pensions and savings gap. It is
hoped that this `listening and
informing' approach will gain general
support and thereby produce the most
widely acceptable solution.
However, in the short term, the
government's actions can be seen as
merely shifting the burden from its
shoulders onto the public's, and
putting the entire onus of saving onto
the individual.
While it is clear that individuals
should take responsibility for their
own retirement, we believe that the
government must first provide some
direction to help steer individuals on
the right road towards financial
security on retirement. It goes without
saying that until the government has
established its own clear course of
action,
the crisis will remain
unchanged and may even worsen.
One of the current problems is
that pension and investment advice
is not easily comprehended by the
mass market. Often, it is full of
technical jargon and fails to address
the key issues. Instead, people need
to receive clear information on how
much they should be saving to retire
comfortably at their desired
retirement age, and how they should
go about it.
At present, pensions are promoted
as a promise to pay out money on
retirement. Yet despite this positive
billing, roughly 60,000 workers have
seen almost half of their pension
disappear after their workplace
scheme was wound up
2
.
What happened to the promise of a
pay out? What happened to the
individual's security? The present
pension promotion needs to be altered
to describe a pension as an asset to
draw money from on retirement,
rather than as an automatic fall-back
option. Before retirement, the client
must manage this asset accordingly
and regularly assess its net worth. It is
a matter for the individual to take
shared responsibility and to be actively
involved in their finances.
A recent Friends Provident study,
`Pension Realisation Research 2005',
identifies that the shortfall in pension
investment is resulting in people
having to postpone retirement. Of
those surveyed, 44% said that they
would like to retire by the age of 55.
However, only 8% expected to
achieve this.
Over 68% expect to work until they
are 60 or over, and a pessimistic 8%
believe they will have to work into
their 70s. In light of this, we
must question why the
government fails to highlight
these messages in their pension
promotion. Surely this would
encourage people to save for
their retirement, making them
realise the value and necessity
of a pension plan?
The government needs to
provide people with the
incentive to save. Lessons can
be drawn from Ireland where
the creation of the Irish
Special Savings Incentive
Account (SSIA) in 2001 has
encouraged savings, with the added
bonus of
a 25% government
contribution for every euro saved.
With investments of
h14 billion, the
scheme has helped to jump start a
sluggish savings environment, with
many people choosing to continue
to save for retirement or for a `rainy
day', even as the scheme draws to
a close.
The UK government must start to
prioritise its pension strategy and lead
the population, rather than sit back
and hope the problem will resolve
itself. Leadership in a democratic
society demands an aided yet
accountable approach to retirement.
Action should be taken now. However,
the government's current attitude
suggests that we will have to wait until
the Turner report
3
, later on in the year,
before we will see any real action on
this matter.
Ray Young, CEO, 3Q Solutions
UK: David Blunkett's pension debate
Over 68% expect to work
until they are 60 or over,
and a pessimistic 8%
believe they will have to
work into their 70s.
"
"
1
http://www.ftadviser.com/dt_general.aspx?m=11288&amid=73432
2
http://news.bbc.co.uk/1/hi/business/3919199.stm
3
http://www.ftadviser.com/dt_general.aspx?m=11288&amid=74399