UK hopelessly optimistic on pensions

Allister Heath
IT is hard to know what is most depressing about Britain’s approach to retirement. The findings of HSBC’s survey on the subject, released this morning, paint an all too accurate picture of an “ostrich generation” convinced it will be able to retire early despite not saving anything. How else can one describe a situation where millions expect to ease into semi-retirement in their mid-50s, stop work entirely at 62 and then go on to live a happy life of prosperous leisure for the next few decades – even though the majority are not making any plans about how they’ll fund their retirement? It’s grim.

No fewer than 17 per cent of UK respondents do not even know what their main source of income will be in retirement. Another 21 per cent of respondents believe that their biggest source of income will be the state pension, which is very low. Only nine per cent will be relying on personal pensions, while four per cent cite selling property. Unsurprisingly, 68 per cent of respondents are worried (though it ought to be even higher, given the public’s faulty assumptions about life expectancy and investment returns) and 48 per cent fear they are not saving enough, rising to 57 per cent among women in their 30s and 40s. But despite all this, just 39 per cent of Britons have put a plan in place to provide for their futures.

The report also paints a stark contrast between East and West: emerging economies are taking responsibility for their own futures while Western countries (UK, Europe and the US) all wallow in a pessimistic vision of a cash-strapped retirement. Twice as many people in Malaysia, China and India have a financial plan than in the UK – reversing the traditional East-West polarities of wealth in retirement. It’s a disaster. There is nothing wrong with consuming and splashing out on enjoying life, as Westerners do, but it shouldn’t come at the expense of decent living conditions in old age. The culture of instant gratification has gone too far.

So what is wrong? The first problem is that too many still see the state as the solution to all their problems, even though the state pension will by necessity always be pathetically low. The second is widespread financial illiteracy and innumeracy: millions don’t really understand financial products, in many cases cannot even work out percentages and are unaware of just how much they will have to put aside to generate a decent income. The third is regulatory confusion: the government keeps changing the rules and has raised costs unnecessarily via excess red tape. Many people simply don’t trust the system won’t keep changing. Remarkably, 57 per cent are not even aware of the new National Employment Savings Trust (Nest), the government’s flagship semi-automatic universal retirement saving scheme due to launch in October 2012. The fourth is that financial firms are failing to create simple, low cost products that appeal to the general public. It’s time for a real change in the City. Last but not least, the public needs a reality check: you can’t hope to retire in your fifties like your parents if you are going to live to be 95 years old.

There will be a default solution, and that will be for folk to work until they drop, dashing their hopeless dreams of years of liberating retirement. Such an outcome could still be partly mitigated – but only if Britain gets its act together, and fast.
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