Politically, the debate includes the position of pensions in an independent Scotland.
The Scottish National Party and ‘Yes’ (to independence) camp has argued that an independent Scotland could be more generous to pensioners. However, the department for work and pensions in its Scotland analysis paper appears to have poured cold water on this, arguing that the pension changes proposed by the SNP would come at a significant cost that would need to be met out of taxation or lower benefits elsewhere. In total, extra expenditure on pensioners in Scotland would rise to around £1.4bn over the next 20 years.
South of the border, one solution suggested for tackling the ageing population is to relax immigration so that younger workers can continue to top up our unfunded state pensions. While in the short term this would have the desired effect (although Ukip and some others would argue against it on employment and other grounds), in the longer term, in my opinion, this is not a realistic solution as these ‘young’ workers will in time become old and dependent too. Clearly, what is needed both north and south of the Scottish border is a funded solution. In theory, the Government’s new higher basic pension with an auto-enrolment top up (for most workers) will achieve this, but only if we shift national insurance contributions onto a ‘saved’ basis instead of ‘pay as you go’. But is there any political will to increase taxes to do this?
So, for many, the future looks bleak and it is easy to talk about today’s pensioners being the lucky generation. Certainly, those who have benefited from good final salary pension schemes are well off, but outside of local and national government few of these schemes have survived and even those that have stayed open have seen reduced formulas and accruals. But even for current retirees, this rosy picture hides some fundamental issues. Apart from the lower earners and millions who have not got a pension beyond the state arrangements, even perceived well-off pensioners are feeling the pinch. So it is timely that Bournemouth University has recently published some interesting research in this area.
As readers may know, I have a soft spot for this establishment as my first experience of higher education was when I was a student there in the 1970s – although in those days it was still a humble college. Today, it is one of the most progressive universities with a good reputation in many areas of research and, therefore, this study comes as no surprise.
Dr Sarah Hean led the six-person research team, but, as with all academic research, there are a few caveats. First, retired people are not a homogenous group and this study only explores the impact of the economic downturn on a specific group: homeowners over 65, not in receipt of means-tested state benefits and living on modest incomes. The report described this group as “asset-rich, cash-poor”. Second, this was only a small-scale research project in Dorset, but while it may not be representative of the entire retired UK population, it nevertheless can provide valuable insight.
Below are the study’s key findings. Clearly, there are a number of lessons that can be learnt from this research and I would encourage all readers to look at the full report, which is surprisingly short. The research was partly funded by the Scottish Accountancy Trust for Education and Research and thus the report was published in Scotland and can be downloaded from The Scottish Institute for Chartered Accountants.
The University of Bournemouth’s key findings:
1.Many ARCP older people, particularly women, have done little retirement planning.
2.Older people, in the ARCP category, tend to manage the money they have very carefully, despite the economic downturn, and have an aversion to debt.
3. Reduced income from investments and increases in pensions that do not keep pace with inflation, combined with increases in costs for essential and non-essential expenditure are having an impact on social, physical and mental wellbeing and causing noticeable lifestyle changes.
4. The economic downturn is impacting on older people indirectly though cuts to public and third-sector services.
5. Older people in the ARCP category do not always access enough or appropriate financial information. Many choose to seek financial information from trusted health and social care providers, their family and/or friends rather than from financial professionals.
6. In order to make ends meet, some older people in the ARCP category may take greater financial risks or be more vulnerable to abuse in an economic downturn.
7. Older people made no reference to the Money Advice Service or the City Regulator as a source of help or advice.
Dr Peter Williams is an independent business consultant and chartered financial planner
Visit www.icas.org.uk/hean
