Stay with me on this one. It’s a slow starter but there is a very serious point I want to make, that is probably affecting you right now and will affect you for the rest of your life, unless you are ready.
State pension introduction
The Old-Age Pensions Act 1908 was the start of pensions provided by the state, which retirees benefit from to this day. We have the Liberal Government of 1906–1914 to thank for this. It might not be as much as you think it should be, but remember in some countries, there is no state pension whatsoever. The irony though, was that it was not payable until age 70, yet life expectancy was around age 50. Credit where credit is due, they did create the Old Age Pension.
Oh, and when it came into effect the amount payable was 5 shillings a week (7s 6d for married couples). In order to be eligible, they had to be earning less than £31. 10s. per year, and had to pass a ‘character test’; only those with a ‘good character’ could receive the pensions. You also had to have been a UK resident for at least 20 years to be eligible and people who hadn’t worked their whole life were also not eligible.
Increased life expectancy
By the time, we got to 1942 and the birth of the NHS, life expectancy had increased, provided you survived the War. The state retirement age had been reduced to age 65 for men and even younger for women. But even in 1942 the average male life expectancy was just under age 62 and just under 68 for women. In simple terms, the government of the day was not on ‘the hook’ as it were to pay a pension for all that long. It was broadly considered that the average man was fortunate to live 3 score year and 10 (age 70 in new money).
By 2001 the average life expectancy of a man was around age 75 and for a woman around 80, so the Old Age pension was having to be paid for longer.
Life expectancy is rising faster than ever, with 90 expected to become the norm in some affluent areas of the country by 2030 leading to a “life expectancy time-bomb”. Is it any wonder that just about all Governments what to increase the age at which you can receive your Old Age Pension?
How is this going to affect you?
Well it’s clear to just about everyone that you cannot live on the Old Age Pension alone, so if you are looking to have a comfortable retirement and I’m guessing this is just about everyone, we are all going to have to do more for ourselves. A typical retiree, needs around £2,000 a month to live on just to service. For a comfortable retirement and beyond, this figure in today’s terms needs to be at least £2,500 month and for many it will probably need to be more, especially if you have been used to earning a high salary.
Why has it come to this?
Quite simple, two things. Healthier living, but more significantly improved medical care provide in the main by the NHS. For all the problems that beset the NHS, it has done a wonderful job in increasing the longevity of our lives, which means we need income for a much longer period of time. And if it needs to last longer, we need to factor into our calculations, the effect of inflation over the long term. A £2,500 to £3,000 a month income today will have much reduced buying power in 10, 20 and 30 years’ time.
So, what is the answer?
Quite simply, whatever we are doing, we need to start as early as possible. With the decline in Defined Pension Benefits, it is very much up to all of us to provide for our own retirements. There is no knight in shining armour coming along, who is going to solve the problems. SO where does one start. My views on this are really clearly. To get to where we want to get to, we need to each find the answers to these 3 simple questions.
- Where do we want to get to?
- When do we want to get there by?
- What are our broad plans to get there?
If you cannot answer these questions, the chances are that you will just blunder up to retirement and may not be pretty. So, whatever your plans are, pensions, property, running you own business, my advice is to work on those questions first and get them written down. My belief on this subject is quite simple.
“A goal in our heads is just a dream
A dream written down is an action plan”
Taking action is the step towards securing a comfortable retirement, no matter how small that step is.
If you are ready to start putting you retirement plans into action, please get in touch for a no-obligation meeting. Go to our website www.miadvice.co.uk and contact us via our “Get in touch” form on our home page or Contact Martin Dodd on 01902 742221.
Email us at email@example.com
It is advisable to take advice from a professional financial adviser when making major financial decisions.
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This article has been prepared in good faith and based on Midlands Investment Agency’s understanding of the law and interpretation thereof at the time of creation. The contents should not be regarded as specific advice and we always recommend that specific advice is sort from a qualified professional. No responsibility can be accepted by Martin Dodd or Midlands Investment Agency Ltd., for any loss that may occur by a person acting or refraining from acting on the basis of this article.