Look at the date, and subtract it from 5th of April this year. You will know now how many days you have to make a decision which may save you from unnecessarily losing money. Read on.
Fortunately I receive a pension: I worked for 40 years and I have been retired for 21 years. It did not occur to me at that time that for every month I worked I was also paying for half a month of retirement. And I should have known better because my work was very much concerned with arranging pensions for my clients. My imprecations were not popular. I found that few people were enthusiastic about foregoing their immediate needs to provide for a remote future which might not ever happen. Buying a car, getting a house, enjoying a summer holiday were all too pressing – perhaps I should come back in a few years’ time when everything would be easier. The most impressive excuse came from an evangelical Christian who quoted “sufficient for the day is the evil thereof” to claim that taking thought for the morrow was sinful. He is, I assume, now praying in a garret.
Such attitudes are not surprising. Two different elements in the brain are working at the same time. One element keeps a watchful eye on the future, close or remote, and nudges us to prepare; the other prompts our enthusiasm for immediate reward. And, for many people, it is the second which wins. We have inherited brains which tell us that if we do not grab now we may not survive to grab in the future.
So let’s look at the problem, using a male aged 65. An annuity of £5000 costs today around £100,000 , so perhaps you need about four times that to buy a modest income for life. (I am only giving a simple example here to show the scale.) To that you will add the state pension – which may well be reduced because the younger generation think it is over generous. They will change their minds too late.
If we assume 30 years to retirement and 3 percent annual growth, the contribution from you or your employer will need to be over £2,000 a year for an annuity of £20,000. But there’s a snag: inflation. Assuming 2 percent (the Bank of England’s target) your modest pension will have substantially lost in value by then. Of course you can postpone your contribution for, say, five years, but the cost each following year will have risen by over a third. No doubt your salary has risen but by now perhaps you have children and one of you works part time. You may have to wait until the children have left home before you find yourself prosperous again – but your retirement date is now that much closer.
This is where the 5th April comes in. One way of bolstering up your future holding is to take out an ISA. The ration for this tax year is up to £20,000. Use it before 6th April, or lose it. While an ISA, unlike a pension, is paid from taxed income or existing savings, the proceeds are tax free. ISAs come in two main forms: a cash ISA– invested in, say, a building society, or an investment ISA– invested in stocks and shares. The first is safer but unexciting; the second is volatile but with higher potential. Which is best for any individual depends on circumstances, and may need professional advice – I can make no recommendation. But I can say that I have bought ISAs, or their predecessors, since they were first available. And I’m jolly glad I did: virtually all my long term savings are in tax free ISAs. A recent facility allows a transfer of ISAs to the survivor of a married couple.
You may say that this is rather depressing. Perhaps, but there is nothing so depressing as being short of income through the years of old age. We must be aware that crisis awaits us. We are having fewer children. And this is generally true throughout Europe. The inevitable result is that the proportion of taxpayers is reduced in comparison with pensioners – who come from generations of larger families. Contraception, women in careers and, ironically, advances in old age medicine also play their part.
Stanislas de Lestapis, the Jesuit demographer, foresaw, in the late ‘50’s, the severe long term economic problems awaiting the Japanese – as they took enthusiastically to contraception under American influence. It is now the most aged society, facing shortages of labour, medical and social care facilities. The number of people over 85 in the UK is predicted by Age UK to more than double in the next 23 years. I shall thankfully be dead. But you may not be.
You have made good preparations for your retirement Quentin and also helped a lot of other people do the same. Though, from what you say, not everyone was interested.
I am pleased to find that concessions on rates and electricity bills along with free travel at certain times and reduced costs for medicines all contribute to taking the sting out of living on our pensions.
I think that people ought to consider living in warmer climates for their retirement even though family ties can make it easier said than done. Air conditioning can be a lot cheaper than central heating and a not having all the work of keeping fires going certainly adds to the amount of leisure time.
At the stage of life when you have to live on a pension needs are not as expensive to meet as they were in earlier stages. Two collapsable chairs in the boot of the car along with sandwiches and cool drinks can make retirement living in good weather very manageable as well as very enjoyable.
Movie concessions and “cheap nights” that a lot of cinemas advertise are another way of stretching the budget so as not to sacrifice too much during the pension years.
Choosing where to life in relation to the sun is just as important a consideration when planning for retirement as good financial advice.
The provision of good health in order to enjoy the senior years is of greater concern to many of us.
You can always cut your cloth to measure where finances are concerned. Not so with health.
When Quentin says “The inevitable result is that the proportion of taxpayers is reduced in comparison with pensioners”, he is talking about demographics. To add to the problem, there is also a skills shortage among those who are of taxpaying age or about to be. This limits their taxpaying potential now and in the future as well as limiting their ability to personally provide the affordable goods and services so urgently needed by the ageing population. The skills gap has been plugged partly by EU workers but this supply is drastically reducing due to fears, justified or otherwise, about the eventual Brexit settlement.
Sound though Quentin’s advice is if my view of his following to his column is accurate he is preaching to the converted and the excellent advice could be shown to our offspring who have to face up to the problem the hard way.
ISA’s have had a mixed press and results over the years but better save that way than not at all.
Perhaps the rise in the property to let market is an indication that this method of protecting ones savings (though more expensive to initiate even with historically cheap rates of mortgage interest rates) can have a very positive effect on income generation today and for future delivery.
Gordon Brown began the slow death of decent pensions when he stop the allowance of tax relief on dividends paid into pension funds. If this allowance was re-introduced there would be a slow recovery of pensions.
I am glad I had no choice about my pension contributions. I wasn’t able to reduce the amount I paid in. Thank goodness for that. I’ve been retired for nearly 21 years and my income is more than adequate.
When I was a child, on the Trustees Savings Bank in Gateshead sculpted in stone were the following words; “If youth but knew what age would crave many a penny youth would save”. How true.
Sorry; correction “If this allowance WERE re-introduced…..”
What is the significance of 5 April? Simply this. Until 1752 the new year began on Lady Day (25 March). When Britain adopted the Gregorian calendar 11 days had to be lost, and they were taken from September. It caused riots, since most people were paid by the day and yet rents were paid on the quarter-day; they had to find the quarter’s rent out of an income reduced by 11 days.
Parliament recognized this, and though the new year now began on 1 January, the quarter days were advanced by 11 days and so 25 March was deferred until 5 April.