The great looming pension crisis
There's a serious pension problem that we need to talk about...
Mark my words: One of the biggest looming crisis in our generation will be the great pension crisis!
The pension situation is dire
The current situation is in a pretty bad state in the western world. With people living much longer than they used to but still retiring in their sixties individuals may find that they dont have enough savings to see them through their retirement. Some may think to rely on the Goverment but this would be a mistake given that the Goverment will only provide a little over £6,000 per annum - hardly enough to live off.
Here in the UK the average pension pot upon retirement is just shy of £50,000. Even at an impossible to read 5% annuity rate an additional £2,500 per year is hardly going to cut it! There is going to be a lot of people that will not be able to fend for themselves.
The situation gets worse when you look at historic defined benefit schemes. Most of these are severely underfunded by the Companies that run them. In the UK the deficit within these schemes has reached over £80billion. That's a lot of people who will likely not receive what they're expecting in retirement especially if Companies go bust under the weight of their pension liabilities (like BHS in May/June 2016).
What you can do to stop yourself being sucked into this pension crisis
The way to avoid being caught up in this looming disaster is simple. Make sure you contribute to your pension. At best you should be putting away 20% of your income into your pension each year of you wish to sustain your current standard of living. This is hard for many individuals so I would encourage you at the very least to take full advantage of any employee matching scheme that you may have available to you.
However, your efforts shouldn't stop there. You need to be diversifying into other assets. Additional savings will be required on top of your pension to invest in business, shares and property. You must diversify your future income as best you can over your lifetime.
What about the wider implications?
The wider implications are even more worrying. The government current funds the PPF which is essentially the last resort for those pension funds that go bust. Given the size of some of the deficits in defined benefit schemes I do not imagine that the PPF will be able to pick up the shortfall in all these funds so I would not recommend relying on it!
As the Goverment comes to the realisation of the pension crisis, probably all too late, I predict that there will be a sudden panic to help the millions of people who didn't have the sense or the capacity to put enough away for their retirement. This will likely result in taxes going up on current incomes and on wealth in order to help to fund the retirements of people without enough income to survive during retirment. Once you've built up your assets you will have to engage tax advice to help to shelter your assets from the creeping fingers of the tax man.
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