The golden age of pensions - we will never have it so good
Written by Paul Dodd on November 05, 2014.
If you were born in the 1940s and are just entering retirement, lucky you! It seems that now is the golden age of pensions according to a study recently released by the Institute of Fiscal Studies (IFS). According the the IFS figures, the majority of couples born in the 1940s and retiring now enjoy the same standard of living after retirement as they did while working. And 50% of them earn more in retirement than their average real working-life earnings.
These children of the 1940s might have suffered the post-war years early on in their lives but they can afford to live out their days in great comfort. During their working years their pension pots were helped along by generous final salary employer pension schemes which guaranteed incomes during retirement of up to two-thirds of their income on retirement. If they bought houses in the 1970s and 1980s they will also have hit the jackpot on the property front benefitting from steady and significant price rises over the last 40 years. These two factors have effectively enabled many of this generation to save more income and wealth than they need.
When this demographic were in their forties, they were probably reaching the peak of their earning potential and the end was in sight for paying off their mortgages. This is in stark contrast to the next generation, themselves now in their forties and reaching middle age. They have had to deal with a global financial crisis, stagnant wages, high house prices, the replacing of defined-benefit pension schemes with far less generous ‘defined contribution’ pension plans and the financial pressure of having to support children later in life. It is this generation who have been found most at risk of future pensions poverty. According to one survey, only half of forty-somethings are saving for retirement and two in five still have dependent children.
If you are in the half not yet saving, you really need to start. While burying your head in the sand might be easier, this is not something that is going away. The longer you leave it, the harder it is going to be to accumulate a pension pot which can afford you the kind of retirement you want.