To think workplace/private pensions will be used like this in future?

[themaskedcat]

Many agree the state pension as it currently works is not sustainable. When it was set up it was linked to life expectancy and there were many workers for every pensioner, but these days it's the biggest cost from the welfare budget and there aren't enough workers for every SP recipient.

The age is going up to 67 soon, and will be 68 for anyone born after 1978. I'm in my 30s and expect the age to be into the 70s for my generation.

But while people are living longer, that doesn't mean people are going to necessarily be healthier and able to work into their 70s. I believe that for many, they will have to use their private pension to 'bridge the gap' from the time they can no longer work until they get the state pension (whatever age that will be). So private pensions will need to be used 'before' rather than 'alongside' the state pension. And that's I think that's why there's such an emphasis on them these days, so people in their 60s will have something to fall back on.

Well that's the case now for many people so I would image so.

Yes the government definately wants the individual to pick up more of the cost, thats why they offer such attractive tax incentives.

Since many can't afford to put that much into their pension benefits will end up picking up the slack - generally they pay less than the state pension (I think, happy to be corrected).

You’re legally obligated to put at least 8% into a pension now.

@Completelyjo you aren't legally obligated, you can opt out if you want to. But your employer has to enrol you if you're over 22 and earn over £10k a year.

That’s often the case now. I know plenty of people who are using their (small) private pension pots to tide them over until SP kicks in, by which time there will be nothing left in their pensions. They’re also downsizing to free up cash.

In a few decades I would imagine people in their 60s will have much bigger pension pots as they’ll have been contributing since they started work and understand the benefits of saving into a pension far more than this generation (I was late 30s before I did a job where a pension was offered). On the flip side, I also expect SP to be means tested by then, so far fewer people will get it.

You're not. Employers are legally obligated to auto enrol employees into a pension scheme subject to earnings thresholds but employees can choose to opt out of it.

And if you're on a low income 8% a year won't amount to much

Must have missed that but whichever way you look at it, 8% of part time or minimum wage is still not a lot.

In Australia we have compulsory 9.5% employer contributions. The employer pays it not the employee. You can also put extra in if you want too as well and get tax benefits. Definitely the idea was to not pay aged pensions. Our aged pension is not a lot anyway. It’s ok if you own your own home but if you rent or still paying off you are living on the breadline.

It's not a lot but it does add up over the years. My husband has very little pension contributions over the years but still managed to get nearly £20k of pension out of it when he retired at 64. He did load it in his later years at work which helped and now that his state pension has kicked in he's £1000 better off a month than he was when he was working.

You’d be surprised. If you put 8% of full time minimum wage in for 40 years, it’s only £1800 a year but with compound interest the final pot would be £320,000.

And that’s assuming only 2% inflation and no pay rises (above inflation). In reality it would probably be a lot more.

Education about this needs to start in school. Surely there is something in the curriculum that can be substituted with this. The next generation needs to have an understanding of loans, mortgages, pensions, investments etc before they enter the workplace. Then people will understand that 8% isn't going to go very far at all.

There needs to be a massive culture change when it comes to retirement planning. People need to have ownership over their plans for retirement, which for most is doable, and realise that the you aren't going to be comfortable on cash from the government.

Everyone assumes that people are going to continue living longer. I’m not sure that will prove to be true. Medical treatments are improving, but my parents are still alive and relatively healthy, without having had a great deal of medical intervention.

I strongly suspect that one of the reasons for that is that many in their generation were pushed into early retirement as there was a phase, particularly in the public sector, where those organizations moved from a “seniority leads to promotion” to a “relative youth is much more highly valued” model.

My dad retired at 55 as he was told he would have to reapply for his job and was not guaranteed to get it back. Given he was on a final salary pension, he decided the potential for being forced into a lower paid position wasn’t worth it, even though he’d rather have continued working for the next ten years.

Equally my mother’s generation were those who often did part time or easier work around childcare (or no additional work). Nowadays many more women are working full time, with all the stresses and strains that brings

I wonder sometimes , whether the reason their generation have lived so long and have remained healthy so long is partly that they had relatively easier lives in their late 50s and early 60s, when the stress of working is really starting to take its toll. In addition they grew up on a healthy diet, related to the continuation of wartime rations.

As the retirement age rises, many more people are overweight and more women work full time throughout, the average death age might actually start to drop. Obviously this is only a theory, but I think there may be factors we haven’t considered, which might have a significant impact.

Wrong! Hope you’re not a pensions advisor!

Yes I've sometimes wondered if the reason women have a longer life expectancy is because they women were less likely to work for their whole working life in the past. One of my grandmothers was a housewife and lived into her 90s, the other had a very stressful job and sadly died in her 60s. I wonder if we will see the life expectancy even up now, especially as the pension age is now the same for men and women.

It used to be said that that particular generation would outlive ours (in my 50's).

And it's certainly starting to look that way. They had the best of everything - thats not a criticism, it's just an observation, they really never had it so good, nor will again.

What sometimes happens is this:

You retire some time from 55 onwards with income from your company pension. You have savings - ISAs or whatever - to draw down on until SP kicks in age 67.

It's 3% from employer and 1% from government tax relief. So only 4% from employee. But yeah, 8% of minimum wage won't end up being much money.

Many people I know my age (32) opt out. It's mad. One told me in her culture people don't believe in pensions. The other told me she would rather save for a deposit though tbh as someone who bought a below average priced flat in London, that 5% pension contributions isn't going to make a dent.

I don't disagree with you OP but for a vast number of people in the public sector our work pension is only allowed to be taken without suffering big hits to it at state pension age which leaves a massive gap.

I've worked in both so have a private and public sector pension, now I pay in extra into my private pension in order to use that as a bridge. I'm late 30s so it's a way off for me but I don't want to work til I'm 70!

They say our generation in our 30s would probably live longer as we don't binge drink to same degree and far fewer smokers..also there are weight loss drugs now.

And Im hope you are not a telephone helpline call handler

I basically think you are right OP, although some people may be able to use PP income to reduce their hours until 67.

As you say, lots of people can't physically work as late as 67 and even if they can, the jobs aren't always available.

The problem is, contributions are “worth” more when you’re younger as it’s got time to appreciate, but that’s the time you can least afford it. I didn’t and couldn’t contribute in my 20s (pre-auto enrolment) – after rent and bills I couldn’t even afford the bus to work (London) in the last week before payday, I had to walk in. The Tube was a distant luxury, about as likely as a taxi!

Making up for it now in my 40s but you have to chunk away so much more and the only reason I can afford to is the sheer luck of enough housing equity, inheriting a car so no car finance, etc. Cost of living being what it is, how are people supposed to house, heat, and eat, and give up a chunk of their salary to something that seems far-off? Yes, you’re giving up free money by not contributing but for a lot of people it’s not a choice not to contribute, it’s necessity of the here and now.