Work until you’re 75? You may have to according to leading academics specializing in the pension industry. The pensions ‘police’ don’t want the retirement age lifted and your contributions increased so you can sky dive and scuba dive in your retirement, they want it raised so you’re closer to death, ergo they pay out less. Even better for them if vast swathes of us die ‘on the job’ between 65-75.
As less young people pay into pension funds and the financial obligations required increase (due to increased longevity) the massive pension time bomb worsens day by day. This insoluble problem is arguably far bigger than the issues surrounding the threat to the euro as a currency, or the Eurozone as a trading environment, yet perhaps unsurprisingly (given the fact that there are zero credible alternative solutions available) successive governments and the media at large refuse to openly discuss the matter from the right angles. They’d rather their populous simply bury their collective heads and hope for the best.
The facts are obvious, in order to receive a decent pension upon retirement most private pensioners in the UK would need to increase their payments by circa 400%, they need a pension pot of £400,000 as opposed to the £90,000 most are projected to achieve. Based on the £90,000 the annual return will be in the region of £3,500 to £4,000 falling way short of most pensioners ambitions when they started their contributions of circa £24,000.
There is no realistic method by which an average UK employee on circa £26,000 gross could increase their payments by the necessary amount they anticipate needing to live comfortably in retirement. In the UK and in Europe there are only two choices; accept that an impoverished retirement is inevitable, or look to self manage and invest in your own pension provision by taking responsibility away from the pension fund managers who can only return decent figures when the equity markets consistently over perform.
Average total pension contributions across UK sectors is circa 9.7% of salary, in order to receive the £24,000 most pensioners want they’d have to have to increase contributions to between 30-40% of salary from the current 3.5% which is (by any measurement) a ridiculous notion.
Average employer contributions across the UK are 6.2% of an employee’s salary. Staff working in the travel and leisure, retail, media, professional services, telecommunications and the technology and oil/gas/metal sectors are receiving below average employer contributions. And employee contributions in the UK are currently 3.5% of salary. Staff in the voluntary/charity and financial services sectors contribute the least to their pot giving 2.4% and 2.6% respectively. This compares to employees with less open-handed employers who give around 4%.
Last year, there were 4.2 people of working age for every pensioner in France. The ratio will fall to 1.9 by 2050, according to a report by Economist magazine in March. In Germany, the proportion will decline to 1.6 from 4.1 in the same period.
The number of people aged over 65 in the 34 countries in the OECD is forecast to more than quadruple to 350 million in 2050 from 85 million in 1970. Life expectancy in Europe is increasing at the rate of five hours a day, according to London based Charles Cowling, managing director of JLT Pension Capital Strategies Ltd. In so-called developed countries, the average lifespan will reach almost 83 by 2050, up from about 75 in 2009, the UN said.
With these stunning predictions in mind Governments may have to follow the same path for their own employees as private pension schemes have, such as closing certain aspects of schemes, as well as increasing the retirement age to at least 70 and possibly 75 in order to make the pensions affordable and viable, Cowling wrote in an article published in July by Public Service Europe..
The numbers for Europe are breath-taking; the state-funded pension obligations in 19 of the European Union nations are five times greater than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Centre for Generational Contracts at Freiburg University in 2009 had circa 30 trillion euros of obligations to their existing populations.
Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report. Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington;
[quote]This is a totally unsustainable situation that quite clearly has to be reversed. Irrespective of whether you’re inside or outside the euro or anything else, raising retirement ages is one of the structural reforms that all of Europe has to do. The crisis has forced them to address this. This is actually a positive thing in many ways.[/quote]
Pension managers and governments are relying on economic growth to underpin the promises they make. If the euro zone grows too slowly to bolster public and private coffers, the retirement plans may become unaffordable, according to pension industry vanguard Mercer’s. Increased retirement ages and lower benefits must be part of any package to hold the 17-nation euro area together, according to analysts, including Fergal McGuinness, head of Mercer’s pensions consulting unit for central and eastern Europe.
[quote]The amount of money countries are going to spend on social security and long-term care is going to go up. Governments with more generous social-security systems will have difficulty affording them. They will have to recognise these costs will impact their ability to reduce borrowings. That is going to put a lot of pressure on Germany’s ability to meet their promises. What they are more likely to do is cut back benefits. Governments face a lot of longevity risks.[/quote]
Unfunded public-sector U.K. pension obligations across 1,500 public bodies totalled 1 trillion pounds ($1.57 trillion) in March 2010, the Treasury said Nov. 29 in the first set of audited Whole of Government Accounts. That compares with a total of 808 billion pounds of outstanding U.K. government bonds and accounts for 90 percent of all public-sector pension liabilities. The key word in this last paragraph is “unfunded”, it could be replaced by nine words; ” haven’t got a clue how we’ll ever pay out”, oh and four more; “shhh..don’t tell anyone..”
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