Join our community of smart investors
OPINION

Gambling with the future

Gambling with the future
November 30, 2012
Gambling with the future

Perhaps that's why many don't. The regularity of surveys landing in my inbox bemoaning the lack of retirement planning in this country suggests a large chunk of workers have their heads either in the clouds or the sand when it comes to pension provision. The latest missive, from Blackrock, reveals that while 31 per cent of 25-34 year olds want to retire on an income of more than £30,000 a year, just 12 per cent of them are saving anything whatsoever for older age, let alone enough to fund a retirement of thirty grand a year.

But is it a question of can't save or won't save? With disposable incomes under pressure, finding the spare £7500 a year a 25-34 year old would need to build up enough of a pot to fund the retirement they're after could prove challenging. And while auto enrolment, the government's big plan to get people into pensions, seems to have got off to a decent start, the scheme has many shortcomings – it does not cater for the underemployed, the self employed or, until 2014 at the earliest, those in small firms, in aggregate more than half of the UK's workforce. Alone, it is not the answer to the risk of rising retirement poverty.

To encourage more people into pensions greater reform is required - because they are confusing, and the likelihood of securing a decent retirement income something of a lottery. Earlier this month, the FSA reduced the standard projection rates pension providers use to give savers an idea of what they're likely to receive in retirement, on the basis that previous forecasts were too optimistic. Nor is the current plight of pensioners a good advertisement for retirement saving - annuity rates are plummeting, and the restrictions on drawdown introduced in the 2011 Budget have taken a large bite out of many pensioners' income.

In short, a demographic time bomb is being compounded by structural challenges in the provision of pensions, and there are market risks to consider too, not least the uncertain prospects for supposedly risk-free gilts. Pensions have, it seems, become a gamble just as pension provision is reaching a crucial juncture. Perhaps, like the Bank of England has, it's time to look overseas for fresh ideas.