Preparing for later life, working longer and saving more

So we are into the second week of 2016 and the research is coming thick and fast. Now the Joseph Rowntree Foundation has produced a report entitled “Preparing for later life: working longer and saving more”, which looks at the barriers to each and why people are discouraged from saving, and why they do not prepare to work longer.

The findings were not really surprising. The ability to save is very much influenced by income and the need to pay the cost of living before being able to put any money aside for retirement.

The high cost of property, low inflation leading to low wage increases and a general feeling of low earnings allied with inflexible low/zero hour contracts is not providing people with the confidence that they can live for today let alone save money for tomorrow!

When it comes to working longer it appears that people are aware and prepared to consider this but then the report comes across a number of barriers such as the nature of the job, health issues, caring responsibilities and even the feeling that it is wrong to work too long as this potentially deprives a younger person from getting a job.

A couple of interesting asides - some younger participants in the research indicated they had little awareness of subjects such as the state pension, how much it would be and the age from which it would be payable; something of a current hot topic in the pensions world.

Policy options were considered and it is not surprising that redistribution of pension tax relief to the lower paid was seen to be a favourable choice, as was rewording the concept of tax relief as a savings incentive.

One phrase that particularly resonated was:

“The office for national statistics predicts that by 2020 people aged over 50 will make up nearly half the adult population and one third of the workforce.”

Now over the years there have been a lot of predictions like this, but I suddenly had that moment of clarity - this is in just four years’ time!

If we have a savings crisis now, what will happen then? Part of the early make-up of this new generation will be the ‘pensioned’ – the last group perhaps with big DB schemes. It also shows the power in the Chancellor’s hand with any revision to tax relief to be announced in the Budget. I think this is evidenced by some further research from the Prudential which shows that by taking into account all their pension pots, the state pension and other investments, people retiring in 2016 expect an annual income of £17,700, a number just starting to recover, having been £18,700 a year at the start of 2008, before the financial crash.

The tilt towards the over 50s and the fact they will have greater wealth than their children will be a difficult one to address and the phrase ’intergenerational fairness’ will be much discussed but, purely from a political perspective, may not be a great vote winner.

One thing we will see in 2016 – pensions and politics will be inextricably linked.

Head of Platform Technical

Mike Morrison has worked in financial services for far too many years. In 1990 he joined Winterthur (now AXAWealth) as Technical Manager, playing an instrumental role in the development of their SIPP product and later their pioneering work on income drawdown.

Mike is an ex Chairman of AMPS (the Association of Member Directed Pension Schemes) and is on the Financial Planning Committee of the ICAEW. He is also an Associate of the Pensions Management Institute and the Chartered Insurance Institute, and he holds both an LLB and an LLM in European Law.

An accomplished speaker and writer on financial services matters, Mike is passionate about retirement and savings issues, and how we can better communicate these to a wider audience.