Sleepwalking into our retirement
I have given up counting the number of times over the last few decades that I have heard senior people use the expression that we are all drinking “in the last chance saloon”.
More recently, we have been encouraged to take a “reality check”, because unless the UK manages to sort out retirement policy, we will be handing a ticking bomb to the next generation. In a recent report, Roadmap for Retirement Reform 2012, published jointly by the Institute of Directors, Lucida and Malcolm Small, senior adviser on pensions policy at the IoD, (who also happens to be policy director for Tisa), writes in a less casual, more authoritative tone. The road sign on the front cover does not beat about the bush: tough decisions ahead.
In no uncertain terms he explains that over the last 40 years we have moved from a “savings” to a “debt” culture. He points to saving for the short, medium and long term having become woefully inadequate and that rather than opting for ‘piecemeal interventions or initiatives’ it is time that government sought to rebuild a sustainable savings culture. He argues that funding for later life is not just about how we go about accumulating retirement savings, but how we build assets throughout life.
The fact that we are increasingly living longer, healthier lives is positive news for all of us however, how we fund the long-term care that the elderly subsequently need to be able to call on is day-by-day becoming an ever more pressing issue. Yet the research contained in the report demonstrates that the UK’s pension architecture, far from encouraging people to save for their retirement has been failing millions – many of whom have chosen not to add to their pension ‘pots’, opting instead to contribute to other savings vehicles – individual savings accounts in particular.
Isa subscriptions have advanced dramatically year-on-year, from £35.7bn in 2007 to £43.9bn in the 2009/2010 tax year. By the following tax year this had leapt to £53.8bn. In the meantime, employee and individual pension contributions have stalled having previously peaked in 2007 at £25.6bn and falling back to £22.9bn by 2009.
Needless to say, this realisation that something is seriously going awry is not new. Over the years, many sensible proposals, (as well as a lot of less well thought through propositions), have been put forward for consideration and implementation. Sadly, in the spirit of “the next lot will have to deal with it,” the Cassandras have been largely ignored. The UK and its representatives, elected and otherwise, shut its eyes, put its fingers in its ears and tried to block out the reality of the fast-looming political and economic discomfort. Austerity measures are unpopular, but for those who have done little or nothing to prepare for the long term, lean times lie ahead after retirement.