Pension Deficit Hyperactivity Disorder

There’s been a few sobering stories in the press this week about how;

firstly how the UK state pension age needs to rise to 71 and

secondly, how old-age is going to be more expensive. All told, it should be clear to everyone now that “doing nothing” isn’t an option if you want to Retire At All (let alone early!)

This story in the iNews is about a happy couple who are older Gen Xers (aged around 55).

David has retired early on £20,000 a year thanks to a Defined Benefit pension. Joanne by comparison only has £55,000 in total in her pensions – despite paying in for years as well – and can’t see herself retiring anytime soon*

You might think that this is a relatively average couple – but their combined salary is around £200,000 a year – way above average. Yet, their position doesn’t appear to be that secure.

For many Gen Xers, it’s a different sort of precariousness. Makes you wonder what retirement prospects the bottom 90% have?

Basic Retirement Requirements

The PLSA, a pensions industry, is a mouthpiece sent out a press release this week, and it was picked up everywhere. Read it here.
But the gist is that:

“The Moderate (Retirement) level increased to
£31,300 for a single person and to £43,100 for a couple.”

And that there is an “Urgent need for reform” including increasing workplace
auto enrolment from 8% to 12% of income.

Those of us who navel-gaze on safe withdrawal rates will be acutely aware that a moderate retirement of £43,100 will require just over a million pounds at 4% – something like the LTA (what’s that?)

Why is this happening?

Besides the obvious, “pension industry wants more of your money’, the message is very clear and I think that the problem of pensions is two-fold:

The current obligation to pensioners (present and soon-to-be) is too generous and the simple solution of just making future pensioners wait longer (71 – when life expectancy is already falling!) isn’t going to solve the problem.

The benefits that boomers were born with (improving quality of life, standard of living, access to housing, infrastructure…), but before they had to pay for it (like childcare, cheap housing, right to buy and  qualifying for pensions that they didn’t pay enough for), and the reluctance of the government to do anything to address the problem now in the roaring 20s or before – has left a massive intergenerational divide.

In the story, the couple have been together for just over 20 years, meaning that they might have either bought a house before or after the early 2000s boom. Depending on which side of the demographical and geographical divide they sit, they either have half a million in (untaxed) housing equity or have been skirting around negative equity for two decades.

We are already in a situation where the average pensioner has a higher income (and pays less tax) than the average worker. How can that be right, justified or sustainable? (Although it might need to be fact checked – since I can’t back it up).

The result is that the current oppressed workers are being asked to put in an extra 3 years of shifts because the current pampered pensioners have it too easy.

Not that all oldiewonks have it easy, many including the “pull up the ladder” WASPI hypocrits are finding out that life isn’t fair – and caravans aren’t just for Grand Designs.

Simple Solutions?

One obvious solution is to tax work and income the same. Scrap NI contributions for employees or lump them onto pensioners. Of course, there are always calls for pensioners to never have to pay any tax at all.

But, given how millions are sleepwalking into modern slavery – of starting working life with massive student debts, paying as much in rent as the rentiers can extract, struggling to save for a deposit
(entering the rent trap) for a house that will cost you a quarter of your life’s wages (and even then, it’s a pokey new-build Barratt Box).

Sometimes, the trend is not your friend

Any money left over could go towards your pension – but given that you probably need to run a car, pay for nursery, don’t have any money left
at the end of the month – you can’t afford that much.

Even 12% of your salary for 40 years, compounded at 3% above inflation for 40 years gives you less than 40% of your final salary at a 4% drawdown. It’s grim.

Simple solutions don’t work – you need to get a bit more creative.

Creative Lifetime Finance Solutions

I used to say that you won’t get rich working for someone else. But I think that it’s easier to say that you will neither get rich nor retire working for someone else and trusting the government.
I still think that you can’t rely on the state pension because it’s better to rely on yourself.

Everyone below the FI line needs to have a plan in place to help increase their income, reduce their outgoings and to invest wisely. And you need to keep sharpening the axe (or pencil) when it comes to your financial health.

I’m not going to tell you to start a side-hustle (to the detriment of
career-focus) or to join one of my seminars (where I’ll tell you my
secrets) – you need to do this yourself.
But, be very frightened that if you don’t do something right now, your long-term financial situation could be shit. Imagine having to choose between heating and eating – for the rest of your life, with no hope of it getting better?

So get active and busy and forward thinking. Something as simple as knowing where your money is best invested (pay off mortgage, pay into ISA, pay into pension) could save you lots of money – money that’s yours and that you’ll need later in life, when your income drops and your mind slows and body aches.

I don’t want to work to 71 – and I certainly don’t want to have no choice in the decision

I can’t imagine another 30 years of this. I’m practically done already. I’m tied to my desk since it’s a good distraction between the hours of 9-3 when the kids are in school. I know whereabouts we are – floating towards Financial Independence.

You can too – but you need to detach yourself from the mainstream.

Most people aren’t going to make it and it’s not their fault. But it will be your fault if you don’t do something NOW!
Good luck, GFF.

*I don’t think that the Lady would be happy for me to retire early and
leave her working for another 15 years – but every happy Gentleman’s
Family is alike…”