PENSIONS: Individual thinking
I was away speaking at the Money Marketing retirement summit in Monte Carlo the other week when I was asked a seemingly simple question (over the internet) by one of the members of our ever-growing pension community on Twitter.
I usually like to answer any questions on Twitter ASAP but this one was a tricky one. The question was: "What percentage of the population dies before they reach pensionable age?"
Looking backwards, official figures say that 16 in every 100 men and 10 in every 100 women die before the age of 65 in the UK.
When you look forward, though, the position changes significantly, with some projections suggesting that fewer than five deaths will occur before age 65 for every 100 lives. There can be quite a bit of variability around the number of deaths, depending on what data is used, but there is no doubt that the vast majority of people these days survive to age 65 and beyond.
Projections suggest that men and women aged 20 now can expect to live somewhere between the ages of 80 and 95. That, of course, is very good news all round and answers the unasked question, I suppose, that goes along the lines of: "Is it worth saving for retirement if you're not going to get there?"
So pensions are clearly important but our pensions really need to adapt a bit to allow for the uncertainties in it all for us as individuals. It is all very well knowing that most of us are going to make it to a ripe old age but not much use to you if you are one of those who does not.
It has always seemed to me that when we save for a pension, we have no real idea of exactly what we are saving for. Our futures are all going to be individual experiences.
There is obviously a risk that we may put aside too little for our eventual needs later in life but there is an equally real risk that we may put aside too much as well. We cannot possibly know in advance.
For that reason alone, I think any unused pension savings we have when we die after age 75 should become heritable assets that we should be allowed to leave to our heirs irrespective of our age at death. Knowing that we cannot overdo saving might make us more confident about saving in the first place.
We need pension legislation that works with us as individuals. It is no longer good enough to say that what we have got works out OK for us as a population as a whole and we have to take the rough with the smooth so don't moan about it.
We are not part of some herd of humans - we are individual people. If 20-year-olds today can expect to live to something like 80 or 95, then it is about time herd-management techniques that lead to things such as the age 75 rule, for example, got knocked on the head, isn't it?
First published in Money Marketing, 4 June 2009
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