WHEN the universal state pension was introduced in 1948, the entitlement age for men was set at 65. At this time, the average man could expect to live only until his late 60s. Contrast that with research from the Human Mortality Database, University of California and Max Planck Institute for Demographic Research (www.mortality.org), which forecasts that a child born in the UK in 2007 has a 50 per cent chance of reaching 103 years of age (so just shy of 104, but forgive me, it was a better fit to McCartney’s original lyrics!).
State pension costs (and other social care costs), therefore, seem on an inexorable rise. This places an increasing burden on the working age population to fund these liabilities, as these are largely paid for out of taxation of the current workforce, rather than some imagined pot of money set aside for you, funded by tax and national insurance payments over your working life. Looking at state pensions specifically, the total cost of these last year was £108bn, or around 42 per cent of the welfare budget.
To compound the problem, we seemingly have a broad reluctance to tackle the issue, with the General Election campaign highlighting that politicians are wary of bringing in changes that will be unpopular with voters, particularly with older people being statistically more likely to vote compared to younger generations. The adverse reaction to the Conservative’s so-called dementia tax being a good example, but also perhaps Labour’s manifesto promise to actually reverse the planned increase in the state pension age to 67, due to rise between 2026 and 2028.
A recent article I read called The Great Reset by US analyst John Mauldin, discusses what he thinks are the largest twin bubbles in the history of the world, the first being global debt levels and the second, larger bubble, being government promises over health care, pensions and social security. He feels that we are in a debt and government promises ‘supercycle’ that has been developing since the late 1930s, with successive governments guaranteeing these benefits on the assumption that taxes would cover the immediate costs and that future politicians would work out the rest. We are now, however, fast approaching the point when these future politicians are the ones we elect here and now.
This is a sobering analysis and feels far removed from the current tone used by our politicians when discussing these issues. So how should one plan for the future? Is there a disincentive to save when there is a possibility of benefits being means tested in the future.
Although it is impossible to know exactly what the longer-term future holds, it would seem prudent to have made some provision to help fund your retirement, or care costs, and we would, of course, advocate a discussion with an investment professional to make sure that you are taking a suitable approach to this.
If you would like to discuss your options with one of our team of Chartered Advisers or Investment Managers please contact Cave & Sons for a no-obligation initial discussion on 01604 621421 or email .
The value of an investment and the income from it could go down as well as up. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. Cave & Sons Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 143715