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.