Pensions - A Brighter Future?

1 December 2015

Pensions - Are We Looking At A Brighter Future? Is there a fate worse than death? There is to some, and it's living too long. A combination of low interest rates and longer lifespans has left some people seeing retirement not as something to look forward to, but as a potential period of poverty and worry.

It's no surprise that this is the case for some people. In the fifty years between 1960 and 2010, expenditure on pensions rose from just 3.8% of GDP to 9.1% and is expected to rise to 12% by 2015. Factor in the inevitable increase in healthcare costs and debt levels and it's clear that trouble could be on the horizon.

The reasons for this potential pension time bomb are various:

  • People are living longer but are not retiring later.
  • People are not saving enough for retirement.
  • People are having fewer children, resulting in an ageing population.

As a result, pension liabilities are outstripping growth in assets in the UK.

What's the solution?

According to a new study by the Chartered body for Financial Analysts, the CFA Institute, there are several steps that countries should take to tackle these issues and happily, the UK is at the forefront of such changes, having introduced much of these steps already. These include the introduction of auto enrolment, making changes to the State Pension and introducing pension freedoms, making pension plans and retirement simpler and more flexible.

What else can be done?

The report by the CFA Institute says that disability benefits, which have always been historically high in the UK need to be looked at, and stricter medical testing should be brought in as has been done elsewhere in the world. Increasing the workforce's participation in pension schemes is the big one however and the UK will see this when all businesses in the UK have gone through the full auto enrolment process.

Although some people may be unhappy with the changes that have already happened and may yet still happen, the fact is they are designed to ensure people have the opportunity to have a long and comfortable retirement. And that can never be a bad thing can it?

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