Thursday, 10 May 2012

Unrealistic expectations

All we seem to hear about is people complaining that we have to pay more and work longer and this made me think, are we living with unrealistic expectations? 

The state pension was introduced by Lloyd George in 1909 where the state pension age was set at 70, since then it has been lowered to 65 for men and 60 for women, and shock / horror it is creeping back up. When we consider life expectancy in 1909 to get to 70 was one thing but to live beyond that was another. If we consider someone living to 65 will live on average until they are 79 realistically should we not be moving to a retirement age of 75?  

Public sector workers feel it is their right to have a pension at 65 and not have to pay for it, we feel it is our right to have a pension at 65 and not pay anymore for it but enough is enough. Our leaders (all parties) need to stand firm and make radical moves now. 

This is an important part of retirement planning because we are blinkered to think we have a right to retire at 65 and we think that at 65 we should take no risk with our money and in fact a number of regulatory bodies take this view. After-all our grandparents put money in a building society and could expect to get 7% return on their cash as income and the capital was fully protected (this of course ignores inflation) but can you imagine at 45 or 50 being told that actually you should move all your money to cash to protect it. This is no different to what the view is when you get to 65, if you live for the average of 14 years and in reality 20 to 25 would you really tie up your money in cash? 

Where is all of this going, I read a lot about the future of platforms, RDR, clean share classes etc etc but actually all of this is irrelevant if we don’t take steps to change a mind-set that is rigidly set in the past. Change needs to come from the top and that has to be a move towards moving the retirement age under public sector and state pensions to 75 as quickly as possible. But also change needs to come in the way we think, financial education leads to an understanding of financial planning. 

Financial planning is key to all of this, just because the state pension moves to 75 doesn’t mean we can’t slowdown in our sixties after-all how many of our parents or grandparents aimed to slowdown in their fifties. Financial planning goes back to setting realistic goals and delivering on long term plan, it’s about acknowledging life expectancy changes and ensuring that money continues to work hard in retirement and it’s about ensuring that ultimately we take control of our retirement and don’t spend time dreaming of a past which has past! 

To round this off consider the debate around annuities and drawdown. The point is being missed. The amount you get from annuities is less than twenty years ago for a number of factors - gilt yields have gone down but life expectancy has increased. Realistically can you expect to get the same as you would have done twenty years ago, of course not? Is drawdown the next big miss-selling scandal of course not it is a vehicle which adapts to our changing retirement patterns. The point is financial planning helps you consider holistically everything you have and how to deliver what you need in retirement.

My question is who is big enough and bold enough to take this forward - Cameron, Clegg or Miliband? 

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