The future of pensions in the UK appears bleak at present, as sustained austerity measures and issues and incrementally rising life expectancies continue to stretch state resources beyond their means.
This was borne out in last year’s announcement that the government were considering increasing the retirement age for both men and women to 68 ahead of schedule, in order to reduce the average length of retirement and provide some much needed respite.
But what exactly does the future of pensions look like in the UK, and how can you improve your chances of enjoying a positive experience in retirement? Let’s take a look.
Inflation, Savings and the Pensions Deficit – A Recipe for Disaster
Economists have been raising the issue of a state pension deficit for years, of course, while workplace and private schemes have also encountered significant difficulties of late. This has created a generation of around 15 million people that have nopension savings at all, with around 31% of adults of in the UK revealing that that they have no private provisionsand will have to rely entirely on the state in their retirement.
It’s also increasingly difficult for those approaching retirement to save outside of their pension schemes, despite the BoE issuing the first base rate interest hike in more than a decade in the final quarter of 2017. In fact, an inflation rate of 2.5% (this metric peaked at 3% last year) remains well in excess of the BoE’s 2% target, creating an inflated cost of living that is disproportionate to the nation’s average earnings and wage growth.
Here’s the issue, as while the macroeconomic climate is creating a scenario where individuals are increasingly reliant on their state pay-outs, the UK government is struggling to meet this changing needs. After all, life expectancy in the UK peaked at around 81.60 back in 2015, and as this continues to increase the nation’s limited state pension provisions are stretched to breaking point. If these trends continue, there’s little doubt that the future for pensions in the UK remains bleak, so the question that remains is how should we respond?
The Solution – Optimising the Value of Private Schemes
While the government’s plans to raise the state retirement age ahead of the existing schedule (this would increase to 68 for men and women between 2037 and 2039 rather than 2044).
This will scarcely make a dent in the impending state pension deficit, however, and in this respect it may be more beneficial for each individual to focus on optimising the value of their private sector schemes. It is possible to pay money into a single, self-invested pension plan (SIPP) through a provider like Bestinvest, for example, which creates an easy to manage fund that can be invested in a host of potentially lucrative assets.
This type of proactive approach may help citizens to avoid the state pension crisis as it looms large on the horizon, as it decreases the burden on the state and reduces the deficit accordingly.