Pension Timebomb

P

Pete

Guest
Anybody read the recent article in Business and Finance about the pension timebomb?

Scary future ahead for us all.

Any advice how to secure one's retirement ?
 
I didn't see the article, but the looming pensions timebomb has been discussed many times over the past ten years.

As a society, we have taken a first step by setting up the national pension fund and investing a significant proportion overseas. In theory, this money should be invested in countries with younger demographics than Ireland; in practice, market considerations apply.

As a society, we are going to have to face the fact that a constantly increasing dependency ratio cannot be sustained indefinitely. This is going to mean a change in our expectations regarding the age at which we can retire.

The Society of Actuaries have come in for a lot of criticism (much of it ill-informed) for suggesting that the normal retirement age may have to be pushed back to age 75. While those who are close to retirement may not relish the thought of having to continue working for (say) twice as long as they expected, there is no doubt that we are going to have to change our expectations.

Falling birth rates and increasing life expectancies mean that we cannot sustain an environment where employees expect to be able to retire in their 50s and early 60s. One solution may be to have some form of flexible retirement, where people gradually reduce their working hours as they near retirement age or take up alternative, less challenging employment. Having a less pressurised working environment, thereby reducing the “burn-out” factor is also desirable.

From an individual viewpoint, falling investment returns and increasing annuity costs mean that traditional approaches to pension provision may no longer offer the prospect of an acceptable level of income in retirement. We may need to lower our expectations and reduce our pre-retirement consumption so that we can divert a greater proportion of our income to various types of savings, including pension plans, property investment and other types of investment. (Suggestions welcome as to what these might be).

Apologies for the long rant, but there is no simple solution. There is always a balancing act required between current and future consumption and the difficulty is that we have created an expectation of a level of current expenditure that is not sustainable if we wish to have any kind of reasonable standard of living in retirement.

I remember a posting a while back that referred to pensioners living in poverty while surrounded by state of the art hi-fi and video technology from the 1980s and 1990s. This may be the choice we are faced with – eschew the rampant consumerism of the Celtic Tiger era or pay the price when it’s too late to do anything about it.

Food for thought.

Regards
Homer
 
By :John Greenwood

Raising the state pension age should not be ruled out just because it is perceived by bodies such as the Trades Union Congress as being unfair to manual workers, according to a study by the Pensions Policy Institute.

The PPI report, called Raising State Pension Age: An Update, says raising the state pension age may be the only way to sustain a better state pension in future.
The report concludes that startling longevity improvements mean that a significant increase in state pension age is long overdue.

The PPI's paper says that while the strongest arguments against raising the state pension age are that it disadvantages manual workers more than non-manual workers, any actual disadvantage could be mitigated in other ways.

It says the proportion of people over state pension age working fluctuated between 7.7 per cent and 8.8 per cent from 1994 to 2001 but increased to 8.8 per cent in 2002 and 9.1 per cent in 2003. This is estimated to rise to 13 per cent by 2030.

PPI director Alison O'Connell says: "Despite the policy's current unpopularity, raising the state pension age could play an important part in making the state pension better. I hope that this paper will lead to a better discussion of the policy and its likely consequences."
TUC pensions officer Michelle Lewis says: "We do not see this as the answer because those who will rely on their state pension are generally in ill health or doing manual jobs. The fact that a male from Manchester has a life expectancy of 69 shows that putting the state pension age up to 70 hits certain groups unfairly."

Source : MoneyMarketing(UK)
 
Interesting

Does anyone know what the mortality rates are for men and women in 2002 and have they changed much over the past decade. What I am really asking is how long is the "average" retirement.
Thanks
Summer
 
Read the article by jill Kerby

Frightening statistics:

Pensioner Support Ratios:
2002 5.9 taxpayers per pensioner
2025 3.7 taxpayers per pensioner
2050 2.0 taxpayers per pensioner

Either starting making serious contribution to your pension or plan to work until your six foot under.

Sweet Dreams or is it Nightmares!!!
 
Hitting home (or trying to ..)

I think that part of the reason that statistics like this don't have the impact that they have is that they are 'macro', ie big picture and don't apply to any single individual.

The reaction to the reporting on the Society of Actuaries suggestion that we 'work until 75' got a reaction because every individual can relate this statistic to their own situation (although this is not actually what they said).

I don't believe that people fully appreciate the impact of living 15+ years in retirement on the State Pension. And with the cost of housing / VHI / various other insurances so high pension contributions are an obvious target for the long finger.

Rather than see the state pension expressed as 30+% of the average industrial wage, lets call it €7,000 p.a. (or whatever it is). Would anyone want to live 15 years on €7,000 p.a.?

And just to respond to the query on annuities, the fall in long term interest rates following our membership of the Euro has had a signficant (not to be reversed?) impact on annuity rates. In addition people are living longer and 70 year olds today are in far better health than 20 years ago (and this trend will likely continue). What a shame after a lifetime - to 60! - of work to be limited in your 'golden' years due to a lack of funds rather than failing health.
 
Life Expectancy

Based on a recent Society of Actuaries paper, males on average are living some 18 years after retirement at 65, whilst in the case of females it is circa 22 years. And based on trends over the last 20 years, the life expectancy figures are only going in one direction - upwards.
If one went back say 20/25 years the figures were circa 13 years and 16 years. So we have seen a 40% improvement in that time. This clearly has cost implications, not just for private pension funding, but also for Social Welfare pension costs.
And when you add the pension costs of Public Sector benchmarking (rarely highlighted when the cost of benchmarking is discussed) one can see that improving life expectancy is not a "free lunch".
 
Re: Life Expectancy

Personal opinion.

Pushing out the retirement age is a certainty to happen. It's not a case of if, but when.

The SoA were (unknowingly?) helping out someone down the line by 'proposing' 75, as it will be easier to back down to 70 when everone is up in arms about it in the future.
 
Life Expectancy

Conan,

Thanks for the figures. I am trying to relate them to family members and people who worked with me and have since retired. Unfortunately very few have reached the ripe old age of 83 and 87 respectively and those that have are not in very good health.
Perhaps the American model is one we should aspire to by downsizing our homes at retirement, this would release capital while at the same time having the comfort of a home that is easily managed. I think the term used is over housed and under capitalised.
 
Life Expectancy

Dear Summer,
You may not be able to change your family, but perhaps you need to change your friends.
Seriously, they are the current figures, even if not in your circle.
 
Long Retirement?

Start eating rabbit food and you'll be grand......

[broken link removed]
 
Annuities

Anybody know how much I'd need in my pension fund to have a monthly income of €3,000 per month, assuming I'm a 65 year old, non smoking, male?
 
annuities

Very roughly you will probably need about 15 times that. So you want €36k per annum from age 65, that makes it you would need about €540k. However remember the €3k per month is taxed, so you don't actually get all of it. If you want €3 a month into your hand net, then you would need to gross up the €540k for tax - roughly about 900k I'd say.
 
Annuities

Taking the eur30,000 income exemption limit for a married person aged 65 and marginal relief tax rate of 40% an income of eur40,000 would give a net pay of eur36,000. So applying tammy's annuity rate of 6.7% to eur40,000 would require a fund of eur597,015. Note that if you required your annuity to increase by 3% annually to cover inflation then the annuity rate would decrease to approximately 6% from 6.7% and consequently change the above calculations.

A final point is that if you were in receipt of a state pension of eur8,180 at 65 then you would require a fund of only eur325,672 ((30,000-8,180)/.067).

aviaro
 
Annuities

Thanks guys,

I a LITTLE short - Better start increasing my AVCs!!!!
 
Came across this website today:

Appears that this company launched in Ireland recently. Certainly offers an interesting alternative to a pension, enabling anyone to develop their own residual income in their spare time.


Link in breach of links policy removed by RainyDay - No relevance to the pensions issue
 
You must log in or register to reply here.
Back
Top