Wise words especially to the young.
I put aside £12 a month from my first job - 20% of my salary then!
When I cashed up my adviser said "'WOW" - that was a good one!"
xxxxxxxxxxxx cs
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TELEGRAPH 28.5.09
To avoid pensions penury, follow Goethe: whatever you can do, start
doing it
Anyone who gives a moment's thought to pensions knows we have a
crisis on our hands.
By Tom Stevenson
Hardly a week goes by without another study highlighting Britain's
woeful lack of retirement savings. Sadly, most people don't give it
that moment's thought and those who do simply file it under "too
difficult". Humankind cannot bear too much reality.
Our capacity for self-delusion was highlighted by a recent survey
which showed that half of us aren't paying into a pension at all,
that we want to retire at the age of 58 and that, even if we were
saving, we would be prepared to put aside just £59 a month. You don't
need to be an actuary to realise that the maths doesn't work.
One of the problems is that we don't have much of a visual guide to
old age poverty. If the pensions Cassandras are right we soon will
have but for those in retirement or coming up to it, it could be too
late.
The people who can still do something about their own personal
pension crisis simply can't make the connection - if you are young,
old and poor is what happens to other people.
A related problem is that those people with time still on their side
are probably not reading this column. I'm guessing that if you're
still with me you are not in the first flush of your career,
determined not to make the mistakes of your older colleagues. If you
are, I'm delighted. If you're not then please consider snipping this
out and giving what follows to someone you care about.
First, understand that you are on your own. That survey also showed
that two thirds of us over-estimate the level of the state pension
and our average guess is £180 a week, about twice the actual level.
The fact is that the Government is not going to help you in any
meaningful way because its lack of cash is greater even than its
desire for your vote.
Last month's Budget showed that it is not serious about encouraging
us to save. Tinkering with the tax relief on pension contributions
for the highest earners may affect only a fraction of the population
but it sends a clear message to people further down the income scale:
watch your back.
The public finances are in a mess and it is hard to see any
government taking the painful decisions needed to get Britain's
balance sheet back in shape. [They've been TOLD to do so by the IMF
and Standard & Poors. If they don't the economy weill totally
collapse! -cs] Demographics won't help either. In the middle of the
20th century there were almost six workers for every retiree. By the
middle of this century there will be less than half as many.
Second, follow Goethe's advice: "whatever you can do, or dream you
can, begin it". If your target is £200,000 at the age of 60 and you
can find a way to make 7pc a year on your investments you can get
there with £100 a month if you start at the age of 23. If you wait
until you are 33 you will need about £200 a month. Wait until you are
43 and it will cost you around £500 a month. Put it off until you are
50 and you'll be looking at £1,100 a month. The power of compounding
cuts both ways.
Third, remember that too little risk can be as dangerous as too much.
Ros Altmann, a former government adviser on pensions and a generally
sensible voice on the subject, warned last week that "the old idea
that stock markets can always be relied on to deliver strong returns
has left millions facing an impoverished old age".
In the short run she is right that equities have underperformed other
assets such as bonds and cash but by rounding on the stock market at
the end of a "lost decade" for equities she is in danger of
compounding one error with another equally bad mistake. Buying shares
at the top only to sell them at the bottom would ensure that
pensioner poverty was for many people not a probability but a certainty.
For a young saver the bigger risk is to watch from the sidelines as
stock markets, especially those in the emerging world, track
economies higher over the next 40 years or so. The trick is to know
when a risk is sensible and desirable and to become more risk averse
as you become less able to withstand shocks but not before.
My final tip is, if you can, to earn your living doing something you
enjoy so much that you won't want to stop or which you can continue
part-time. Remember, even £5,000 a year from a part-time job is
£100,000 you don't -need in your pension pot.
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Tom Stevenson is an investment commentator for Fidelity
International. The views expressed are his own.
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