The 30-somethings planning for penury
Over the last few weeks, as luck would have it, several chance meetings with 30-somethings have had a common refrain. Namely, a strong assertion that you've got to be barking to consider putting money into a pension.
And the problem is, it's not difficult to see why they might be suspicious. We've had years of drip-drip-drip bad news about pensions, pension providers and greedy IFAs. Time and again, the message coming out is too many people take a cut out of the money you put aside -- and too many rules get in the way of reuniting you with it.
As one 30-something said to me last week:
"It's wasted money, isn't it? How do I know I'm going to get it back? And to be honest, I don't think that I will get it back."
Yet this is the very generation that isn't going to be handed an inheritance windfall on a plate. Today's under‑34s are expected to inherit only about half as much as their parents ‑‑ and will receive it later in life, what's more, as their parents die at a greater age.
Pensions certainly have a bad name -- even when provided by employers.
According to the Office for National Statistics, the number of workers actively paying into occupational pension schemes has fallen to its lowest level since 1956.
What's more, survey after survey highlights an ostrich-like head-in-the-sand attitude towards pension planning, and this week brought another one -- the latest in the 'Visions of Britain 2020' series published by Friends Life in association with The Future Foundation.
It's a wide-ranging report, covering everything from the calibre of financial education to oddities towards paternalism in the workplace.
But yet again, what struck me were some of the comments and survey findings attributed to 30-somethings in respect of pensions provision.
Take a look, and see for yourself:
- Over a quarter (26%) of those aged 25‑44 said they found pensions "too boring" to interest them.
- 35% of those aged 18-34 thought that they were too young to worry about pensions.
- 48% of workers aged under 35 are not saving for a pension at all. And so on, and so on.
Granted, the economy isn't helping. Overall, 32% of those in employment say they can't afford to save -- but that still leaves significant numbers who could put money aside, and simply won't put money aside.
Rather than just trot out the facts, the Friends Life report also includes some thoughtful speculation as to why this state of affairs has arisen, and what alternatives exist.
I liked this point of view, for instance, from Carl Emmerson of the Institute for Fiscal Studies:
"There's too much uncertainty over the rest of their lives. The idea that they want to tie that money up in a way that they can't access it until 65 makes it much less attractive. It seems much more sensible then to have liquid funds to hand simply so that they have access to it should they need it."
Michael Johnson, of the Centre for Policy Studies, made another sage point, remarking that people weren't against savings -- they were against pensions, and that there was a difference:
"People do not live their lives in a way that resonates with the principles of pensions products, which is why fewer and fewer people are actually saving within a pensions framework. [Instead], they're actually saving within ISAs."
Mine, all mine
And indeed, that point is backed up by my own informal research. People view ISAs as much more 'their' money than a pension.
For a start, if they need to dip into it in an emergency, they can. Which of course, you can't with a pension, where strict time limits and caps on withdrawals exist.
This attitude, too, goes some way to explaining the prevalence for viewing property as a pension -- either for rental, or for sale on retirement. It's 'your' money, in other words.
The trouble is, such options won't necessarily fund a retirement.
The limit on a contributions to cash ISA, for instance, stands at £5,340 this year, although it's due to go up in April. And cash ISAs, just to hammer the point home, are currently paying out a real (i.e. inflation adjusted) rate of return that is negative.
Granted, you can put double that into a stocks and shares ISA, but these are sadly far less popular than cash ISAs.
Property? I'm not convinced it's an option except for a fortunate few. Many 30-somethings have enough on their plates trying to pay for their main residence, let alone a second or third home. And buy-to-let mortgages, in case you haven't noticed, haven't been too plentiful in recent years.
Not too late
In short, I'm reasonably convinced that high numbers of today's 30-somethings are in for a rude awakening -- at just the point when it's probably too late to do anything about it.
To my mind, there are only two sensible courses of action.
1. Save for retirement in a stocks and shares ISA, benefiting from the higher returns that the stock market offers. Risky? If you're in your thirties or forties, I think the real risk posed by a simple index tracker is negligible.
2. Save for retirement in a SIPP. You can put more in, there are tax breaks that act as an inducement, and -- as with a stocks and shares ISA -- you control where your money goes. Again, a cheap tracker is a sensible option for those wanting a low-cost, well-diversified savings vehicle.
So what's your advice to today's 30-somethings? Comments in the box below, please!