COMMENT
Financial Disaster On The Horizon!

By Cliff D'Arcy
October 28, 2005

According to the latest figures from the Office for National Statistics, most adults of working age aren't contributing to a pension at present.

There are 37 million adults of working age in Britain, but fewer than half of these are paying into a private or company pension. In its Pensions Trend survey, the ONS revealed that just under half of men (48%) and only two in five women (40%) are active members of an ongoing scheme. What makes things worse is that even workers who are saving aren't putting nearly enough aside.

When ONS began these annual surveys in 1996, the figure for men was three in five (60%), so it's dropped by a fifth in nine years. Although the figure for women has crept up slightly from a recent low of 39%, this is the first annual survey to report an overall figure below half (50%), There are many, many reasons for the public lack of confidence in pensions, including:

• The withdrawal of the dividend tax credit in 1997 reduced investment returns for pension funds;
• The stock-market plunged between 2000 and March 2003, knocking hundreds of billions off the value of shares and scaring off millions of investors;
• The collapse or closure of thousands of guaranteed final-salary schemes has made workers wary of trusting occupational pensions (the number of private-sector final-salary schemes has almost halved in four years, plunging from 34,700 in 2000 to 18,100 in 2004);
• The long-running Equitable Life scandal shows that even the most highly praised companies can fail disgracefully;
• A nine-year house-price boom caught the imagination of the nation, turning many people into first-time landlords and property investors; and
• The introduction of means-tested pension credits means that, for some low-income workers, saving for retirement simply isn't worthwhile. After all, why replace State income with your own private income?

Women, in particular, face tough times in the years to come. Thanks to part-time working, maternity leave, childcare demands and looking after elderly or disabled relatives, women get a raw deal in retirement. Almost three-quarters of women (73%) have under £10,000 in a private pension, which won't even buy an annual income of, say, £500.

This report clearly indicates that, for the majority of today's workers, retirement is going to be one long struggle to make ends meet. Instead of caviar and cruises, today's workers will have to settle for baked beans and holidays in their own back garden. What's more, if you intend to rely on the State, you'll be forced to endure a subsistence-level retirement. Can you imagine trying to survive on the basic State pension, currently £355 a month before pension credits for a single person?

Of course, some workers will be making provision for their retirement elsewhere - for example, by investing in property or other assets, or by putting money into tax-free ISAs (Individual Savings Accounts). However, from what I've learned about human nature in my eighteen years in financial services, I suspect that few of us are taking retirement as seriously as we should.

Make no mistake: the pension problem is squaring up to be the UK's biggest economic problem and, left unsolved, it will eventually become a full-blown financial crisis. In the words of Private Fraser from Dad's Army, "Doomed, we are all doomed!"

I'll cut to the chase: here's how to boost your pension pot:

1. Get a pension! If you have a decent company scheme, join it, especially if your employer contributes to it or covers any administration costs. If you can't join an occupational scheme, open a low-cost personal or Stakeholder pension. The lower the charges, the better.
2. Do it TODAY, not tomorrow, because the earlier you start, the more you'll end up with!
3. Put in as much as you can afford to spare (these 25 money-saving tips should help to boost your disposal income, for a start). Tax relief at 22% or 40% will help to bring down the cost.
4. Look back to see what pensions you already have by creating a pension CV. For example, I've missed about eight years so far, so I'm saving like mad to catch up!
5. Get a State pension forecast.
6. Understand that failing to save now could mean being forced to work into your seventies.
7. If you work in the public sector, despite the recent agreement I wouldn't assume that your copper-bottomed final-salary schemes will be around forever, because the cost is simply too great for taxpayers to bear.

Finally, there is some good news on the horizon, because pensions will become simpler (and perhaps even sexier!) when Pensions A-Day arrives next April.

Good luck with funding your retirement, because you're going to need it!

More: Check out our Pensions, ISAs and Savings centres.