FT: Young face crippling pension savings

Young face crippling pension savings
By Alexander Jolliffe
Financial Times Published: April 23 2004 21:56
Young people will have to put aside a cripplingly high proportion of
their salaries if they want to retire at 65, according to new research which shows that most thirty-somethings will have to work well past the state retirement age. Research by John Chapman, an independent consultant, reveals in detail the sums that savers would need to invest in order to retire at 65.
The figures show that even young people on above-average earnings would have to invest big sums to retire at 65. A 30-year old earning £35,000 a year would have to save £620 a month - or £7,440 a year - to build up a pension equivalent to two-thirds of final salary.
"Such high savings levels are unrealistic relative to incomes," said Mr Chapman.
Higher savings are needed because people are expected to live longer after the state retirement age. The average life expectancy of a 65 year-old man has jumped from 14.5 years in 1994 to 16.6 years today, according to the Government Actuary's Department.
Mr Chapman said: "Life expectancy is the fundamental problem. "But the burden of investing enough is intolerable. Something's got to give."
Young investors also need to invest high sums because many employers have closed their final salary pension schemes, which largely protect members from investment risk and pay pensions based on length of service and salary at retirement.
Many companies have replaced final salary plans with money purchase schemes, but tend to pay much less into these funds. Employers contribute 13.1 per cent of salary on average into final salary schemes, but only 5.2 per cent into money purchase funds, according to the Association of Consulting Actuaries.
Mr Chapman said his figures underlined the attractiveness of final salary schemes.
Mr Chapman said the majority who could not afford to invest enough would have to work longer. A 30 year-old earning £35,000 a year could cut their monthly contributions from £620 to £300 by working until 70.
He said: "Most such savers are forced into working until 70, and even then they could face savings . . . burdens [which are] unacceptable for those with student loans to repay, mortgages and family bills."
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid 79420574475&p12571727102
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

And this is a problem why, exactly? When I was earning that much I was stuffing away 15% AVCs and another 10% or so was going into the company's fund. Bearing in mind contributions are tax free. And does everyone really need/want to retire on 2/3rds final salary anyway??
--
GSV Three Minds in a Can
Outgoing Msgs are Turing Tested,and indistinguishable from human typing.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
GSV Three Minds in a Can wrote:

Not if they've paid off their mortgages by then. But that is increasingly likely not to be the case.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

"GSV Three Minds in a Can" wrote

anyway??
Does everyone really need/want to retire at age 65 anyway??
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Tim wrote:

Of course not. Nobody in their right minds would want to leave it as late as that.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I wouldn't have wanted to wait that long. However I guess some people live to work, and might as well keep doing it until they drop.
--
GSV Three Minds in a Can
Outgoing Msgs are Turing Tested,and indistinguishable from human typing.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

"Ronald Raygun" wrote

"GSV Three Minds in a Can" wrote

Well, if people intend/expect to retire either *before* or *little after* half-way through their adult lives, then they should jolly well *expect* to pay through the nose for a pension while they are working!!!
Stopping work at an early age (compared to expected age at death) shouldn't be considered "retirement" - it should be considered "giving-up work". [There's nothing wrong with that, if that's what you want. Just don't call it "retirement"!]
*True* retirement should really only be for around 5-10 years (say) before leaving this world ...
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
Tim wrote:

Don't be daft. Whom could they trust that what they pay in will actually benefit *them*?

You expect people to retire when they expect to die? That's not very nice. Nowadays we expect a long and happy retirement as of right!

They are synonymous.

Whyever not?

Why?
Is your philosophy of human existence such that it views people as servants (whose?) to be discarded when they've outlived their usefulness? Nay, lad, people are their own masters and they discard their employment when *it* has outlived its usefulness.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

after*

"Ronald Raygun" wrote

I disagree.
If you became a multi-millionaire at age (say) 22 - maybe by winning the lottery - would you say "I'm going to *retire* now", - or - "I'm going to give up work now" ?
If you were at school, and did a paper-round - but then decided to give-up the paper-round in order to concentrate on studies, would you say "I've decided to *retire*" - or - "I'm stopping working" ? :-)
I respectfully suggest that they are *not* synonymous!

"Ronald Raygun" wrote

Because retirement indicates some sort of inability to continue (through old-age or ill-health) and/or no expectation of the possibility of ever returning to work.

"Ronald Raygun" wrote

The word has been hijacked by modern-day usage.
In the "old days", retirement was simply a reward given by altruistic employers to those employees who had worked very hard for the company, and happened to live long enough to become less able to perform at the job. This generally usually only happens much closer to old age ...
"Ronald Raygun" wrote

Of course not.
"Ronald Raygun" wrote

I totally agree. But I don't believe that stopping work should *always* be called "retirement".
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
begin quote from Tim in uk.finance about: Re: FT: Young face crippling pension savings

No.
I want a system which gives me three months holiday a year, in return for which I'll work until I'm too ill to do so, with increasing amounts of holiday from age 70 onwards (to reflect the fact that it is likely your job will have substantially changed by then and it will probably be better to have a younger person do it, and to give you some kind of quasi-retirement).
I have a horrible feeling that many people slave away for years, finally retire, and then realise they have all this free time to use, nothing very much to do with it, fewer friends to do it with, and, without work, rapidly start to lose any 'purpose' in life. It doesn't sound like much fun to me.
I'd rather have a fair dollop of spare time *now* when I'm young and fit enough to be able to enjoy it properly! :-)
--
David Marsh, <reply-to-email is valid at time of writing> |
Edinburgh, Scotland. [en, fr, (de)] | http://web.viewport.co.uk/ |
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

Agreed absolutely!
Hard to do though, unless you run your own business.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload


And one of the main reason why I left one of the "Big Four" firms quite a few years ago. :)
--
Doug Ramage



Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
John-Smith wrote:

Some people would say hard to do though, especially if you run your own business.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Yes, in the sense that a business usually makes you work harder. But you have the *option* to reduce your involvement, by building it up to a stage where you can employ someone to take over a part of your job, and then you create extra free time for yourself.
The fact that many small businessmen choose not to take up that option is their problem.
In a normal job you don't have any option but to work until retirement, or until you drop dead (whichever occurs first) and unless you are on loads of money (e.g. 50k+ and living single) there is no chance of retiring with a decent SOL before 65 - or anytime for that matter.
Unless you are a woman; then you can get yourself set up through marriage :) My ex is now worth nearly 1M, not bad starting from the council house she was in when I met her. So, if you have nice legs, go for a sex change :)
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 24 Apr 2004 06:18:08 -0700, snipped-for-privacy@hotmail.com (Sufaud) wrote:

A point not mentioned is that over the last 50 years there has been a continuous introduction of technological fixes which have improved our standard of living such that money saved for a pension in 1954 say will pay for a current pensioner to have say, a telephone and central heating now which they couldn't afford whilst they were working.
We've had our "White Hot technological Revolution" now and it's by no means clear there's many more technical fixes to come. As energy runs out it'll get more expensive it could be that today's young workers will face a rather cheerless retirement.
DG
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.