Good news for pensioners? Or more: “lies, damned lies, and statistics”?

on Feb 05 in Is it my crisis? , My pension is fine , Other assets enough , State pension tagged by Brian Wood

The latest figures from the Office of National Statistics (ONS) made interesting headlines – the number of pensioners living below the breadline has decreased by a third in the past decade.  That sounds like healthy progress – but is it?

Not if you are one of the 2 million the ONS still estimate are living below the breadline (60% of median income less housing costs), or one of the million people aged 60 or over living in fuel poverty (spending more than 10% of income on heating).

The statistics are a bit opaque, so let’s do some simple maths.  According to ONS, the median pay of all full-time workers in 2009 was £489 a week, and housing costs are a fairly consistent one-fifth of income.  So on this basis the breadline would be roughly calculated as 60% of 80% of £489, which would be £235 a week – well over double the basic state pension (£95.25 a week) payable to those who qualified in 2009/10.  Yet by 2007, the state pension still accounted for 37% of all pension income, with a further 13% coming from other state benefits.

How is this relevant for you?  If you are thinking about your retirement plans you need to focus on what your own “right number” might be.  Presumably you don’t plan to be on the breadline or in fuel poverty – so what do you actually want, and how are you going to achieve it?

It’s pretty clear that relying on the state will leave you at high risk of retiring in poverty.  And given the number of occupational pension schemes which have either closed or converted from final salary to money purchase in the last few years, it would be unwise to rely on your employer.

What you can do?

For each individual the message is loud and clear – you need to be responsible for your own retirement. That means:

  • Paying close attention to any pensions you have and being prepared to take action on your funds.
  • An annual review of your retirement finances, to make sure you are on track towards your “right number”.  Now is an excellent time to do this as we are heading towards the end of this tax year.
  • Keeping your skills up-to-date and be prepared to invest in yourself so you continue to have the option of earning an income until whatever age you decide to retire.
  • Saving as much as you can towards retirement – whether in a pension plan or any other form of savings.

At a national level, this all gives increasing support to the idea that people are going to need to work longer and the government need to act now to facilitate that change.  The general consensus is that we need to abolish the mandatory retirement age of 65 or at least increase it significantly to 75. However, this is not going to be sufficient. It will also need the government to provide incentives to employers to retain older staff and incentives to older staff to keep their skills up-to-date or to retrain.

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