A CELEBRITY with a 'significant' birthday in the next few weeks has created a new ally for all those saving for their old age pension and retirement - namely, Prince Charles. Prince Charles will no doubt be picking up his free bus pass (if he hasn't already done so) when he turns 65 on November 14. He will also be eligible for his free TV licence and, of course, his winter fuel allowance as well. The timing was right, then, for the prince to step up to the mike with some words of solidarity with the pensioners of the nation, as he did this week. Prince Charles referred to the short-term views, taken by bankers and financial institutions, that in his view could be damaging to the interests of the public, as we all become pensioners in due course. He was speaking mainly about the need for long-term investments, by pension funds and others, in infrastructural projects that would not only benefit society but also produce concrete assets with a revenue stream that would secure the investment. These could be investments in rail and energy supply, or in social housing, as pension funds do in countries like Canada and Germany. The prince gave a message to the pensions industry that they would have to do better if "your grandchildren, and mine for that matter" were not to face a miserable future. The prince didn't go into much detail but he may have been hinting at what some experts are calling the "graph of doom" or the "pensions timebomb", based on rising numbers of those drawing pensions and possibly also in need of NHS care, and the relative fall in the number of working taxpayers to fund it.
The pensions timebomb consists of a number of hugely critical trends: we have a growing pensioner population that is living longer; we have more people with no private pension (although the government's Nest and other schemes are addressing that), both state and private sector have cut their pension provision compared to 20 years ago; and the value of pension annuities has plummeted due to market conditions and inflation. Today there are around 12 million pensioners in the UK, of which roughly two-thirds are women. However, we are the generation of the 'wellderly', a healthier crowd who are living longer with life expectancies now hovering around 81 for a man and 87 for a woman. When you think about it, that gives us all a 20-year holiday at the end of our lives, paid only by our pension income. Government has responded to this with a gradual increase in the state pension age but with the increase in our life expectancy we may still be drawing a pension for the same number of years as before. Back in the year 2000, there were three workers to support every old age pensioner. By 2060 they reckon that will have dropped to 2.5 workers per pensioner - and falling. This is expected to put massive pressure on pension schemes, both in the public and private sectors. There is no doubt that the pensions landscape is a much more hostile environment than it was for previous generations. The good old days 20 or 30 years ago, where people could retire relatively comfortably on the state pension, are already being nostalgically termed a 'golden era' of pension provision. Government initiatives to get more people saving into a workplace pension are shifting the responsibility for pension provision away from the state and on to the shoulders of the individual. They are designed to alleviate this growing burden on the state, in terms of funding for pensions. The politicians believe that our traditional dependency on the state pensions we have funded during our working lives is simply not sustainable in the longer term. The need for an increased uptake of private pensions by people working today is clear - if the 'pensions timebomb' is not to explode at some time during our lifetime, or that of our children.
* Michael Kennedy is an independent financial adviser and pensions expert and can be contacted on 028 7188 6005.