Read any Sunday
paper supplement on finance or business and inevitably youll find
one or more articles on how to invest in a pension fund. Visit a local
high street bank and the counter will be littered with brochures offering
several types of pension schemes. Come election time in any western
democracy and every political party will stand firm on a soapbox to
defend the rights of pensioners. However, the issue of financial subsistence
of modern society as it reaches the golden age of retirement is far
more complex than meets the eye.
For a retired person, financial security, health, and lifestyle all
go hand in hand. They are inevitably linked and are heterogeneous throughout
retirement. Yet the future course for the well being of most pensioners
is set at a very early stage. In other words, it is generally built
up over the years. It is a long-term process.
Starting with money matters, pensions are divided into two kinds, state
pensions and private ones. Both are based on regular funding. What differentiates
one from the other is that state pension contributions go directly towards
paying for existing pensions. The contributor has no say in the matter.
Available capital for pensions depends entirely on the ratio between
the working and retired members of the population at any particular
moment in time. At the moment, due to dwindling birth rates and an increase
in the longevity of life, this ratio is in danger of bankruptcy. State
pension budgets throughout the western world are a time bomb ready to
explode into the red.
Private pension schemes are also suffering but from a different type
of economic gloom. The majority were dependant on stock market returns.
Over the years, moneys have poured into all kinds of schemes that at
the end of the day (maturity) were meant to pay out a healthy annuity
in the form of a pension. Unfortunately, stocks, shares and other ingredients
have not lived up to investors expectations and thousands of would
be pensioners are now suffering heavy losses on their returns.
Many individuals with extra income have also invested in private property,
savings or other ventures to enhance their future wealth. The crux is
that most was and is affected by a variety of changes that have inevitably
taken place over a period of time. Tax manipulation, political and legal
modifications, and movement of inflation and interest rates, cost of
living, all contributed to the uncertainty of the final outcome of a
monthly pension on retirement.
The tragedy is that none of the above was or is predictable. Having
planned retirement for forty years, at the end of the day, one has no
idea what to expect from that first pension cheque!
Time is another crucial factor in end-of-the-line wealth. The earlier
an individual saves for retirement, the wealthier he will
find himself when he decides to pack it all in. This is known as building
up individual capital.
Enter early retirement and other theme variations. It someone suddenly
finds himself at say the age of fifty that a firm or employer no longer
needs him, he is quite happy to accept a lump sump plus a monthly pension
based on whatever he has earned during the working part of his life.
But what happens if he lives to the age of eighty-two? At fifty, one
is still young enough to go on holiday twice a year, have a few pints
at the local on the weekends or play golf all day long. Some may re-marry
and start a new family. This all costs money. The bank balance will
soon go into the red. Retiring early without the future possibility
of work, and thus further income is a costly mistake. Early retirement
is to be avoided like the plague.
When it comes to health, if a human being has generally lived a salubrious
life, chances are he will live to reach old age without any major medical
complications. If this is not the case and a person has lead a 'full'
life, it is probable that he will turn into a health liability in later
Assuming health is not an issue, we must also consider the family situation.
The retirement spectrum could swing from being a divorced and remarried
sixty-something with two teenage children to a fifty-nine year old widower,
both with the same relative retirement income. The basic survival outgoings
of these examples are quite different. It wont take long for the
former to run out of money and the latter to leave a healthy fortune
in a will to the next of kin.
What about those that retire abroad, especially to countries in the
European Union? Does joining the euro mean anything to them? Of course
it does. If they are entitled to a state pension, at sixty-five they
can transfer to the scheme of the countryof residence. The rest of their
income is subject to the value of the pound versus the euro. Is this
a good thing? It is at the moment. Most of those retired in Marbella
for example are bulging with pesetas because of the high value of the
pound. And of course they want to keep sterling! But again, it is only
a matter of time, should the pound drop to is real value, and cost of
living rise in Spain, that these same pensioners will find a big drop
in their monthly income cheque.
What about the political manifesto for the forthcoming elections? All
political parties should agree on the following:
A: Pensions should be completely divorced from political agendas. Incentives
towards well-planed retirement income, still in their infancy, should
be a priority for every citizen in the country, built up gradually over
a period of time. They should be protected by law and not tampered with
regardless of change of government. National Insurance pensions, on
the other hand, should become an ongoing national debate regardless
of party colour. No government should be allowed to use it as a political
election tool. The economic reality of state funded pensions has to
be brought out in the open with a priority given to the hardship sector
of the population.
B: Early retirement must not be encouraged. If necessary, older workers
are to be allowed to work part time, or take on consultancy work rather
than face outright redundancy. Several methods could be worked out between
employers, governments and unions. The vital point is to continue working
as long as possible.
C: Regarding health, there will come a time when people will have to
be seriously penalised for not looking after themselves (smoking and
even drug taking are classic examples) during their life if they expect
to be taken care of at old age. (Many old age pensioners today who are
suffering in old homes would not be there had they led healthier lifestyles.)
D: Campaigns should be introduced, focused on todays youth, to
emphasize conservation of health and saving money for the future. The
younger generation need to be constantly reminded that they will one
day become grandparents and that the healthier and wealthier they are,
E: Euthanasia is going to come; there is no doubt about it. The present
state of old age health care is escalating beyond any governments
budget. The more fragile or senile a person becomes, the more expensive
it is for the state to look after that person. It may seem a cruel assumption
but it is nevertheless a very real one. Naturally, strict laws will
be needed to outlaw abuse.
Epilogue: If the truth about all future pension problems are not focused
on as top priority and discussed in earnest, the welfare of the developed
world as we know it, could be in jeopardy. Democracy would certainly
be at risk!
© James Skinner. 2001
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