COMMENT
The Crazy World Of Pensions!

By Cliff D'Arcy
December 1, 2005

I was invited to appear on a television news programme yesterday to discuss the Pensions Commission's report. (I don't plan to talk about the technical detail of Lord Turner's report; you can read a brief summary here.)

The producer wanted me to do a street interview, offering guidance to a 23-year-old man who has yet to start a pension. Sadly, I was unable to appear on the show, but here's the reply that I was tempted to give:

"My advice to this young man is to become an MP, because they are members of perhaps the best pension scheme in the country and, what's more, they will never allow it to be devalued. That would be like turkeys voting for Christmas!"

Whatever you think about the recommendations of the Turner report, the facts are simple. In 1950, there were roughly five workers for every pensioner. By the time I come to retire, say, in 2033, this ratio will be down to roughly 2½ workers per pensioner. Hence, all else being equal, pensions must be weakened, or the workforce must pay considerably higher taxes to support decent pensions.

Neither of these are particularly attractive options, but our thinking on pensions is so muddled that I'm beginning to doubt whether we, as a nation, can actually come up with a workable solution to the pensions dilemma. To help you to see why I'm so gloomy, here are some quotes from surveys and reports that I've read this week:

• Only a third of the public trusts pension providers to run their pension (Which? survey). Given the high charges and poor investment returns from private pension providers, this doesn't surprise me one bit!
  
  
• Nearly three quarters (74%) of Britons either absolutely do not trust or probably do not trust the Government on pensions (Friends Provident survey). You can include me in this group, because politicians will do anything to avoid tackling the thorny problem of an ageing population!
  
  
• Two-fifths (40%) of UK adults believe the issues surrounding the UK pensions system will be solved by the time they retire. Women and low earners are most optimistic about the future of pensions (IFA Promotion survey). Oh dear, these poor deluded people are in for a big shock, aren't they? For goodness' sake, don't just close your eyes and wish you were back in Kansas again, Dorothy!
  
  
• Over half of UK adults (24 million people) refuse to cut back on spending to save for retirement. Of those who say they are already saving something, seven in ten (70%) claim they cannot save a penny more than they currently do (IFA Promotion survey). Fine - if you can't stop overspending and getting into debt, there's no hope for you at all!
  
  
• More than half of adults (52%) would prefer to save more and have less to spend now, rather than work to an older age (Nationwide BS survey). Okay, so why are less than half of working-age adults currently paying into a pension?
  
  
• If the UK pension system was simplified, seven in ten people (70%) say that they would save more (Nationwide BS survey). The good news is that pensions will become somewhat simpler from 6 April 2006, known as Pensions A-Day.

One thing is clear: we all need to start saving more, and the sooner, the better. Blindly relying on the State and refusing to accept reality is a recipe for ruin. After all, the government has made a complete hash of Tax Credits, SERPS, the State Second Pension, and the Pension Credit, so I expect it to make a complete pig's ear of any new pension schemes (such as the proposed "Britsaver"), especially if means testing is involved!

So, if we don't trust the government, financial firms or our employers, who can we trust to provide for our retirement? The answer is simple: the only person who can solve your personal financial problems is YOU, of course! If you want a comfortable and secure retirement, or even just want to avoid poverty in old age, it's up to you to do the planning and saving, because no-one else will do it for you, that's for sure!

In summary, if you don't start making reasonable provision for your retirement, only a Lotto jackpot will prevent you from working well into old age or spending your retirement eating cold beans in a freezing flat. This article includes seven tips on how to make a start today.

More: Check out our Pensions centre | Beware Of Property As A Pension!