When you’re young you barely know what a pension is and you certainly don’t stop long to think about it. That is one reason why the majority of younger people don’t join a pension scheme. Luckily in my day, starting out on a career, many employers still had a paternalistic outlook and promoted the value of their pension schemes as well as making their own contribution. It was a strong encouragement to join.
Over the last few blogs I have been writing about pensions – (see “PENSION CRYSTAL BALL” by clicking on it in the TAG CLOUD) – prompted by the Government’s seemingly paternalistic move to auto-enrol people in their new NEST pension scheme. I am generally supportive of this approach – it is essential for the young to start saving early for their retirement even though it is a low priority in their carefree years.
However, if I knew little about pensions when I was young, I certainly did not know what an annuity was. Given the almost total demise of final salary pension schemes, an annuity becomes a key word in your retirement vocabulary. Yet the Government has been very quiet about annuities, while at the same time advertising their new pension scheme on the tele. This is not quite so paternalistic.
An annuity is the way you convert your hard-earned savings – albeit tax-free – into an annual payment for the rest of your life. Once again, the Government is giving with one hand and taking away with the other. Annuity rates have been falling dramatically, initially driven down by the increased longevity of people. More recently though, it is because of the Government’s £375 billion licence to print money — called quantative easing — i.e. we are borrowing more to pay back all he money we have borrowed ?????? Economics is a wonderful world of smoke and mirrors.
Annuities have fallen 20% in the last three years, just as 800,000 baby boomers are about to retire. Now you know why you need
A CRYSTAL BALL