The Top Three Risks for pensioners income

pentioners-planning-retirement
  • Author : Bill Vasilieff
  • Date : 27 Sep 2019

Bill Vasilieff on the Top Three Risks to consider when looking at pensioners income.

You are on your own

It may seem strange but the biggest risk for most pensioners is living for a long time! Or more accurately living for a long time and running out of money. We now live in a society in the UK where employees in the private sector are seeing pensions linked to their earnings (a Defined Benefit pension) disappear. The lucky ones however in the public sector have salary-linked pensions underwritten by the state (in other words, the taxpayer). The numbers of defined benefit schemes open to new members has declined rapidly in the last few years and the situation is increasingly one which workers are on their own and need to invest money in their working life, to pay for the years in retirement. The problem has been exacerbated by life expectancy improving rapidly, this clearly increases the time spent in retirement.

The basic state pension is disappearing

According to 2017 OECD figures, the UK does not have a very generous state pension. Pensioners in the UK receive 29 per cent of previous earnings for their state pensions, meaning the UK ranks 24th on a global list of how much governments contribute to pensions as a percentage of average earnings.

At the same time, the age at which the state pension kicks in is rising and will be 67 by 2028 and 68 by 2046. To make matters worse, the think tank, The Centre for Social Justice, is calling to increase the state pension age to 75 in the next 15 years. We are not sure how this fits with social justice and to quote from their website –

The Centre for Social Justice (CSJ) was established as an independent think-tank in 2004 to put social justice at the heart of British politics and make policy recommendations to tackle the root causes of poverty.”

Making people poorer doesn’t seem a good way of tackling poverty!

For a long time, annual increases to state pensions were limited and so the value of the pension fell back in real terms. There is no guarantee that this doesn’t happen again.

So here’s the double whammy from the state. Increasing the age from which your state pension is paid and paying you less when it is actually paid. The message is clear – don’t rely on the state.

You don’t invest enough

There are in conclusion only two ways that you can maintain a reasonable standard of living in old age – you either work longer (not palatable to most of us) or, you invest more. We use the word invest as it is vitally important that you put your cash into assets which will match and beat inflation (the fourth hidden risk) and putting your money into cash will only see it erode in buying power over time. The sooner you start investing the better as the beneficial effect of compound interest over the long term is enormous. As Albert Einstein once noted

‘the most powerful force in the universe was the principle of compounding’.

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