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We will outlive our pensions

With the World Economic Forum (WEF) recently suggesting people in the UK will outlive their retirement funds by more than a decade, Stuart Price, Partner and Actuary at Quantum Advisory, looks at what needs to be done to avoid a pensioner poverty crisis.

Stuart said: “The WEF’s report is very worrying. It states that the average retirement savings will last around 8.5 years – nowhere near as long as you’d expect to need it for and therefore many will be reliant on the State, which only provides a basic level of income in retirement, in the latter years of their retirement.

Traditionally, when we first retire, we’re active and need more spending money to enjoy ourselves. As we grow older, between the ages of 75 and 84, we’re less mobile and therefore need less income. After this time, we’ll likely need more money to pay for long term care, which is something else the government need to address.

We didn’t need the report to tell us that we need to be saving more. The current minimum contributions from an individual and their employer to a defined contribution (DC) pension arrangement are not nearly enough to allow people to enjoy a comfortable retirement. Policy makers and the government need to take responsibility for allowing this to happen.

Some potential solutions, as I see it, are to bring back the defined benefit (DB) regime – albeit a watered-down version – to allow people to build up a guaranteed income in retirement on top of the State Pension but something that is affordable to employers, or a combination of DB and DC such as collective defined contribution (CDC) pension schemes. CDCs are widely used in the Netherlands, Denmark and parts of Canada, that sees pension benefits available at retirement calculated by the Scheme Actuary. They basically merge DC and DB schemes so employees enjoy similar benefits as DB schemes without the increased risk to employers.

The pension dashboard should also make a difference to people’s saving habits. Physically seeing what they can expect to receive in retirement will hopefully awaken employees and persuade them to put more money away for retirement.”

However, currently politicians and the government just seem to have one item on their agenda – Brexit – and the fundamentals for a good society such as pensions and care for the elderly are sadly lacking far behind.


Stuart Price, Partner and Actuary