Age of unenlightenment

12 Aug 11
Victoria Harkness

New research suggests many people are confused by the financial jargon surrounding pensions and are making insufficient plans for their retirements. Simplification should be the watchword of any future state pension policy

The gradual greying tapestry of the UK’s population has been well documented in recent years, highlighting the wonders of modern medicine and warning of the perils of unfunded retirement.

With the percentage of the population aged 65 and over set to increase by 43%, the ratio of pensioners to workers is expected to drop from 3.2 in 2008 to only 2 workers per pensioner by 2051. The projected rise in costs of public pensions is ‘unsustainable’ according to the Chancellor George Osborne, and Work & Pensions Secretary Ian Duncan Smith recently proposed several reforms.

Despite this, the obviousness of the ticking time-bomb is seemingly passing us by. The July Ipsos Mori Issues Index shows only one in 12 are concerned about the ageing population. All of us are to blame for ignoring retirement planning, but who can blame us, when for many, retirement is still at least 30-40 years away?

Over a quarter of those approaching retirement age cite money issues as the reason they intend to work well beyond it. Fear of poverty or a decline in standards of living is cited by many as their reason for staying in employment as long as possible. For most, retirement is seen as a point of no return, a stage of life that they believe requires large savings to enter, even if they don’t really understand the system they’re retiring into.

The recession has had little affect on views. Less than one in 10 label the recession as a reason for working longer and only two in 10 said the recession affected their views on retirement.

However, the picture is not entirely cloudy. Many companies intend to keep and fully utilise their experienced and knowledgeable senior workers. If anything, employers want to use the extra productivity of their established grey matter instead of training younger new workers.

The silver-haired kings and queens are more than happy to oblige too, with the companionship the workplace offers coming close behind finance as a reason to work beyond age 65. Then, there is the widespread belief that retirement brings only mental and physical stagnation, followed by decline. The golf course and Countdown may be calling, but these seasoned workers aren’t planning on heading out to pasture any time soon.

Unsurprisingly, those already unemployed or unable to work do not place much emphasis on reaching 65. With their lives already defined by restricted income and sometimes poor health, the only change this milestone brings for them is a different name for benefits they already receive.

It may be easy to blame low take-up of private pensions and ignorance of the system on an apathetic public, but the fact is, most simply cannot understand the financial jargon that litters policy documents let alone find time to sit down and study them.

There are three main reasons for this unwillingness to engage with the State Pension System:

Stigmatism: 65 may have been old when these workers were young, but now they’re reaching the age, they’re not showing any signs of slowing down. As Einstein demonstrated, time is relative, and attaching the word ‘pensioner’ to these veterans makes them run a mile or possibly shuffle slowly depending on their actual condition. They may be 65 and legally pensioners, but certainly don’t call them that.

Insufficient Income: Current incomes are not seen as too low; more than half of pensioners (54%) live on less than £150 a week. Seven in 10 believe that isn’t enough to live on and those approaching retirement agree.

Too Prepared: Lastly for those already in private pension schemes the state pension is seen as a ‘top-up’ or a bonus to their own pension plans and therefore unimportant.

Simplification, security and personalisation should be the watchwords of any future pension policy. Pre-pensioners are confused by the system, pensioners are worried about its provisions (the UK has the one of the smallest pensions in the OECD) and both are wary that top-down reforms aren’t tailored to their individual needs.

Assumptions based on little knowledge, fear of the unknown, denial, and dislike of being labelled a ‘pensioner’ mean that everyone puts off retirement planning until they’re forced to. Older generations struggle more with the emotional aspect of retirement rather than the financial one and most claim to be better with money than the young. Those approaching, and beyond, retirement feel most able to cope with living on more restricted income.

However, those who are working seem less able to cope with issues of status and self-worth and are least likely to admit to this as the cause of their anxiety over retirement.

Whatever the eventual outcome of the proposed pension system reforms, with life expectancy spiralling ever upward, a whole new generation of pensioners are soon to join the ranks of existing ones with a whole new range of Clinton cards to cater for future great-great-grandsons.

Victoria Harkness is associate director at Ipsos Mori

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