A crisis is going on. It isn’t happening right now, but is due to happen in the coming years. The Best You investigates the pensions timebomb
New research shows that many people are either feeling so squeezed by today’s economic situation or they simply aren’t engaging with the fact that they have a tomorrow to consider. The big question is, are you laying down provision for your retirement?
In a recent survey in the UK, the Equity Release Council, the trade body providing consumer information and safeguards regarding the equity release industry found 65% of people were struggling to save for their retirement, while only 16% showed signs of being “savvy and sorted”.
Recent data published by the Office for National Statistic showed that while 76% of UK households currently save into a pension the amount of savings needed to fund a regular retirement income has grown substantially since December 2009.
In 2013, a savings pot £458,000 is needed to receive an annual retirement income of £15,000 – 29% more for men than was needed in 2009 when the savings targets was £354,100, and 14% more for women in the same year when they £400,600.
Many also see their homes as a potential financial asset, intending to downsize and release equity. This is where the current economic problems have also caused problems. With the current stagnation in house prices in the UK, those who bought interest-only mortgages expecting their house price to far outstrip the initial sum paid for the house and thus being able to profit on the difference at sale are seeing no growth in their purchase. Essentially in the same position as those renting, a million people in the UK now find that they will have a shortfall of an average £71,000 when it comes to paying off the lump sum.
These mortgages were popular in the 1990s when they were sold alongside endowment mortgages and popular again in the 2000s when homeowners essentially bet on the value of their homes rising continuously. Described as “mortgage timebomb” by the BBC, the problem has been recognised by the FCAm the Financial Conduct Authority.
In the US among single people, the figures are even more stark. In 2008 the average married household saved nearly 10 times more as they entered retirement than the median single-person household, $111,600 vs. $12,500.
That’s why in the US mandatory savings accounts are being discussed for anyone with full or part-time job.
Laurence Fink, CEO of BlackRock, the world’s largest investment firm that has with $4 trillion under management and one of the major players in the financial world says:
“We need a comprehensive solution to retirement savings that includes some form of mandatory retirement savings.” He went on to acknowledge that
In a different survey by the UK Money Advice Service, 12% of people aged over 55 who have not yet retired have not considered how their pension will be funded, while 40% are resigned to having to work as long as they can and 8% believe they’ll never retire.
The Service has dubbed this apathy towards penions as “Pensionitis”, a condition that could leave people struggling financially in retirement.
Remember, no one else is going to provide for you. It may seem a long way off, but now’s the time to start planning for the future!
What do you need to do?
- Engage with the problem. If you haven’t yet considered setting up pension provision, no matter what age you are, the time to start is now.
- Look ahead. It may seem like a major effort to think so far off into the future, but ask yourself, what future would you like? One in which you are living a hand-to-mouth existence in your old age, or one in which you have a stready income that supports you during your well-earned retirement?
- Get advice. One thing to is check in with a reliable Financial Adviser and set a plan for your future.
- Save Save Save. Getting into the habit of saving is the starting point. Set aside an agreed amount every month to put into your pension pot and set up that direct debit. Once you’ve started, then you’ll find that your life adjusts to the new investment in your future.
- Cut your cloth. Look for ways that you can cut spending now to fund that pot. So many people subscribe to services they rarely use. What don’t you need? The gym membership? That new car now?
- Make new money. Think of new ways to make a bit of extra money. Selling things online, getting extra work, looking for other ways to make money at business clubs – all these are options.