Great expectations?

Apr 11 2006

By Jane Hall, The Journal

A new report says retirement uncertainty is splitting optimists and pessimists down the middle. Jane Hall reports. ********** Ann Willers is a fully signed-up member of the last generation that will enjoy a fruitful old age. A former primary school teacher, the 58-year-old took early retirement two years ago and is enjoying reaping the benefits of her occupational pension scheme. Or so the headlines would have us believe. For while the mother-of-three from Marton, Middlesbrough, and her husband Stephan, also 58, a retired chartered accountant, are indeed enjoying having escaped the rat race, Ann's Teachers' Pension Scheme is failing to live up to expectations. Story continues ADVERTISEMENT And the reason is simple. While Ann started teaching at the age of 22, she, like many women in the 1970s and 1980s, gave up work to raise her children, Catherine, now 30, James, 29, and 25-year-old Helen. Altogether - taking into account her early retirement, a period spent teaching abroad and the time she devoted to being a stay-at-home mother - she has lost 21 years of paying towards both her state and personal pension. Ann says, thanks to her husband's pension: "We are not on the breadline, we are comfortable." But she feels she could be in a better financial position and believes her children - despite the current concerns about Britain's ailing pensions system and how well it will be able to meet the future needs of today's young people - will enjoy a better standard of living than she and Stephan in their twilight years. "I have been penalised for not working, for when the kids were small, and that really annoys me," says Ann. "You think you are doing the right thing staying at home and looking after your children, but then you find you have lost out on your pension. "But 30 years ago that is what women did; they didn't go back to work as women do now. I do feel very strongly, however, that women now are missing out on their kids early life - the current economic climate kind of forces woman back to work." Ann will qualify for her state pension next year "and my bus pass", she adds with a laugh. She believes her generation has suffered all their lives from being the so-called `baby-boomers' born after the Second World War: "There are so many of us, and if we do go on and live for a long time there is going to be a problem with our pensions being able to keep us. "On the one hand we have benefited from being the first generation to inherit our parents' estate. Before that, families had little to pass on. But we have benefited from inherited wealth. "Similarly, our children's generation will hopefully benefit in the same way. "But our children are also growing up in an age where pensions are very high profile. All my children have already started funding pensions, which we didn't do with such serious intentions at their age. "In our day, you just assumed you would be taken care of in old age. But things have changed. I think my kids are going to have to work longer, which I think is terribly unfair, but I do believe they are going to have a more financially secure retirement." Ann's views are mirrored in a new report from Alliance Trust Savings, which reveals young people are nearly twice as likely as those approaching retirement to think they'll have a good standard of living when they stop work. Nearly two-thirds of people of working age said they thought retired relatives were well off, while 57% expected their own standard of living in retirement to be the same or better. But, while 71% of people under 35 thought they would equal their retired relatives' standard of living, just 38% of baby-boomers over 55 felt that way. Hyman Wolanski, head of pensions at Alliance Trust Savings, says: "Economists have long predicted that the baby-boomers will be one of the most comfortably-off generations in recent history, but this sunny outlook has clearly not filtered through to those approaching retirement. "Hardly surprising when we consider the doom and gloom about pensions in the last few years, and its impact on those wrestling now with how they will get by in their old age." Indeed, an estimated two million pensioners are collectively paying off debts totalling £15.9bn. According to debt advocacy group One Advice, the average person over 65 owes £17,342 in secured and unsecured loans. More than 700,000 pensioners are still repaying their mortgage, owing an average of £18,153 each, while 1.42 million collectively owe £1.67bn on credit cards. Other sources of debt include personal loans, overdrafts and money borrowed from family and friends. The research also found that more than 77,000 pensioners have fallen behind on their debt repayments, while nearly a quarter of people who owed money were worried about keeping up with their borrowings. Chris Holmes, chief executive of One Advice, says: "Given that most people aged 65 and over are not working, seeing so much debt within this age group is very worrying. Many of them will be servicing their debts from their pensions, and this no doubt contributes to around two million pensioners living below the poverty line." While many baby-boomers are undoubtedly struggling to make ends meet, is the younger generation right to be optimistic about its own retirement future? Perhaps not. Hyman Wolanksi says: "It's really the younger generations who should be worrying, and planning earlier, but our research suggests that, instead, they're either peering through a rose-tinted lens at a comfortable retirement or just burying their heads in the sand. "For many younger people it's easier to picture their retirement in terms of how retired people live today than to get to grips with the economic and social challenges they face in securing a comfortable living in old age. "The good news is that future generations will, hopefully, live longer and healthier retirements. A sobering side is that younger generations will need to start planning and saving for their old age far earlier and more seriously than today's pensioners, or face an extremely restricted lifestyle." Much of the uncertainty could be alleviated if the Government adopts Adair Turner's final Pensions Commission report published last week. Lord Turner called for an end to `endless chopping and changing' that has plagued pensions provision in the past and emphasised the importance of the total package he set out in his report last November remaining intact. That package had four key elements: * Reforms of the state system to make it more generous and less means-tested, but with those reforms made affordable by a gradual long-term rise in the state pension age. * Employees not already in good pension schemes to be automatically enrolled by employers into pension saving but with the right to opt out. * Employers required to make contributions of 3% of earnings, where the employee chooses to stay enrolled. * The creation of a new National Pension Savings Scheme - already dubbed the Britsaver - designed to ensure all individuals can enjoy the chance to save at the low costs enjoyed by higher earners or by employees of large companies or of the public sector. If adopted, Lord Turner's vision for the future would represent the biggest upheaval in state pensions since the Second World War. But, while most groups support Lord Turner's core proposals, he still has to convince the Government to find the money to make them work. Page 2: What you should be doing for a better retirement

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