We'll live to regret it

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The Independent Online
There was doom and gloom all over the place last week. If you are reading this it suggests that, despite Nostradamus's prediction, the world didn't end. But surviving a global conflagration means we could live for a very long time to come. The problem with that? Most of us are going to have to stretch very little money over very many years.

Among the more pessimistic predictions I read last week was the suggestion that 75 per cent of today's working adults are not going to have a comfortable retirement. Hardly cause for celebration, especially when you consider that a "comfortable" retirement is defined as an income of pounds 192 a week.

The figures come from actuaries Bacon & Woodrow, and take into account the likely impact of the Government's new, low-cost stakeholder pension schemes.

But saving a token amount of cash in a stakeholder, "money purchase" company pension or personal pension is almost pointless. Why? We live in a low-interest, low-inflation world and even the new pension reforms don't take account of that fact. A person buying a retirement income (an annuity) now will get 65 per cent less than someone who saved the same amount of cash and retired in 1990. To make any serious money you now have to invest large sums, adventurously and successfully, throughout your working life.

As with so many of our financial plans, the existing pension system is still set up to fit in with the lifestyle and economic climate of our parents and grandparents.

It doesn't work anymore. One pension expert told me last week that we are less than two years away from a situation where a man retiring at 60 will get an income of pounds 5,000 a year for each pounds 100,000 saved in his pension fund.

The easiest long-term solution is to abolish the need for people to buy an annuity when they retire. We would then have to manage our pension fund like any other investment. But we would also end up at serious risk from stock market falls.

It seems crazy for the Government to have spent so much time and effort sorting out the stakeholder pension scheme - which will be finalised in September - but to have ignored the income blight they perpetuate for our pensioners.

Until more (vociferous) people retire with very little cash, and the Government takes notice, calamitous annuity rates will continue to ruin the lives of older people and the expectations of many of us hoping for a long and prosperous retirement.

n i.berwick@independent.co.uk