It’s too late for the government to act to improve pensions for the over 55s – who have too little time to build a stash of cash and a limited amount of money to put aside.
That doesn’t mean retirement savers should give up on their later years, but the problem is few options are open for many to improve their finances.
The government recognises this and is turning the big guns on younger savers who have time on their side.
Auto-enrolment in to workplace pensions starting in a few months is just the first step. Expect a raft of initiatives to boost a saving habit earlier in life from financial firms and the government’s Money Advice Service.
Rather hopefully, the MAS pensions page carries the message: “It΄s never too early to start saving for your retirement.”
The site goes on to boast that those nearing or in retirement can find out how to make the most of their pension fund and boost income.
Unfortunately, the site fails to offer anything other than broad brush information and is nothing more than a gateway providing links to other web sites.
Many approaching retirement must feel the government has abandoned them to their fate like a silver phalanx of cannon fodder marching towards financial oblivion.
The main issue over pensions is the politics. Yo-yo Labour and Tory governments swapping place in Downing Street over the past 50 years or so has left the country with a hotch-potch of dogma and rules that simply is not up to the job .
Labour have relentlessly tried to transfer risk and social responsibility for caring for workers in their old age to employers, while the Tories have been just as relentless in transferring that risk back to the individual.
Now, the whole sorry mess has come to a head and is likely to leave a generation of over 55s without adequate financial provision in their retirement.
What are the options?
Save – Most certainly every responsible individual should put money aside from the good years to tide them over in their later years. The problem is inflation and interest rates are eroding savings
Improve state pensions – Pouring government money in to pensions will make the difference between poverty and comfort for many, but the money has to come from somewhere. The nation has seen the effects of over-borrowing and a shrinking workforce cannot raise enough taxes to meet demand while struggling to save for their own retirement.
Tamper with interest rates – The Bank of England could increase interest rates from the historic three-year low of 0.5%, but this would impact on business borrowing, mortgage rates and other credit.
As individuals, over 55s with their own paid-for homes can look at downsizing to release cash locked in their homes, or raise money to supplement their pensions from equity release.
Many financial advisers see equity release as the next ‘big thing’ for retirement savers, but for many that may be because their other sources of revenue from mortgages has slowed to a trickle.
Taking a realistic approach to spending can also do wonders. Look at that spending budget and cut out all the waste.
Switch from paying on credit to saving money and paying bills by cash, and look at all those small direct debits that suck money out of the bank – like satellite TV, mobile phone tariffs that stay unused and gadget insurances.
A good businessman will agree profits come from two areas – sales and controlling costs. Some businesses make more money from the same turnover by being ruthless with costs.
In the end, that’s all that’s left for retirement savers -
• Put away what you can
• Build up assets, like a pension, cash ISAs or property that can provide money in retirement
• Manage assets and budgets to slice away any unnecessary spending
Don’t hold your breath and wait for the government to ride to the rescue – they’re not coming.
Pensions minister Steve Webb has announced the government is investigating new schemes that could give more financial security to retiring workers, but these are no good for the over 55s because they will take too long to bring to the workforce.
He dubbed the pensions overhaul as a ‘defined ambition plan’ that essentially will give a worker a pot of money on a defined date for investment in an annuity to pay a pension.
The shift in emphasis comes from removing any guarantees from employers to underwrite shortfalls in payments.
Criticism of the scheme comes from concerns about leaving a pension fund to the vagaries of the money markets without any protection of a minimum payment.
“Firms would like to offer their employees some sort of certainty but without all the costs and burden they already face,” said the minister.
