Friday, December 21, 2012
I recently reached one of those landmark birthdays which, literally overnight, transfer you seamlessly into a new, if slightly greyer, age band.
I’m now a long way off either end of these age-related clusters beloved by statisticians, yet while I’ve shifted up one, my attitude is that I still feel as though I belong in the 15-24 category.
Nevertheless, all being well, there’s one group to which, if the European Commission’s 2012 Ageing Report is accurate, I have moved slightly closer.
According to the Commission, whereas around 16pc of Britons are currently aged over 65, in twenty years time, that figure will have risen to 25pc and I’ll be one of them. What’s even more startling is the speed with which the ratio of pensioners to workers increases over the same period.
In 2010, across Europe, the figure was 39pc, but by 2060, it will have risen to 71pc. In countries such as Poland and Romania, the ratio will have reached an astonishing 90pc.
All around us, we see evidence of the ‘baby boomer’ generation retiring at a noticeably faster rate than say, a decade ago (because proportionally, there are more of them) and being inundated with advertisements for worldwide cruises, senior property complexes and aids to assist increasingly creaky bones. People who have worked and saved throughout their lives rightly feel entitled to enjoy the fruits of their labours, but because there are so many of them (I’ll write ‘us’ soon enough), the cost of providing pensions for these folks is careering through the roof.
In one respect, this ‘problem’ is being addressed as new, later official retirement ages are being phased in over the coming two decades, a process which effectively delays state spending on pensions, but it’s not enough. I suspect that by 2060, the official retirement will be much closer to 75, or even higher.
People in their twenties and thirties reading this may feel that this is a problem likely to be solved by the time they reach retirement, although regrettably, this is not so.
Indeed, there is a strong probability that the state will no longer be able to afford anything other than a token contribution to pensioners’ living costs in forty-odd years time.
I’ve mentioned here before that the sleight of hand which makes people believe that their National Insurance Contributions are somehow ring-fenced and invested to provide their pension is, unfortunately, untrue. Your NICs are another tax. Nothing else.
But it transpires that we have another problem.
You see, as the first batch of baby boomers started approaching retirement, so pension schemes increasingly began shifting out of equities and into lower risk bonds. In many pension funds, the proportion of bond holdings now exceeds equities for the first time in half a century.
Moreover, as bonds offer fixed returns, insurers too buy more of them as people begin drawing their pension and buying annuities, which depresses the bond yield as well as their availability.
Pension funds are required to invest in the best quality assets available to them, but as many mature at the same rate as their members, they’re having to avoid investing in equities, even though shares, while volatile, generally out-perform fixed-interest products such as bonds over the medium- to longer-term. Christmas is hardly a time for sobering thoughts, but this is one matter all of us, irrespective of age, must address sooner rather than later.