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Pensions crisis? Only if you're middle aged

Workers in their 40s face the biggest challenge, data suggests, so here are tips to beat the squeeze, whatever your age.

A recent BlackRock survey shows 45 to 54-year-olds save less than other age groups.

A generational divide is emerging in pension saving as people in the middle of their career fall behind young professionals and those nearing retirement.

This middle-aged group is unlikely to have the generous final salary pensions enjoyed by their parents – and they appear less aware of the need to provide for themselves than today's younger generation.

Despite continued warnings about increasing life expectancies, survey after survey shows people are not saving enough for their old age. And there is a "black spot" of inadequate saving focused on those in their forties and fifties.

But despite the financial pressures, there are measures that can help with pension planning at every stage of life, as we explain.

The 30s

Here the focus is typically on establishing a career, buying a property and starting a family. Debt racked up as a student may remain a factor.

But any saving now benefits from the long timescale ahead. The earlier you start saving, the more you will gain from compound interest, vastly boosting your retirement pot over 40 years.

Make the most of your company's pension scheme – when your employer makes a contribution, it is effectively a pay rise. You will be expected to contribute a small percentage of your wage each month. and, if you put in extra, your company may match it up to a point. And don't be afraid to invest in higher-risk investment funds – you are investing for the long term and can weather volatility in the markets.

The 40s

In previous generations, the forties might have been a period of relative prosperity as earnings peaked and families began to get the better of mortgages. This is not always the case today. Bigger mortgages and children born later in life heap the financial pressures on to this stage. Research by BlackRock, the asset manager, which surveyed 2,000 adults, found 45 to 54-yearolds the most "at risk" age group in terms of future pensions poverty. Only half saved for retirement, it found – two in five still had dependent children.

BlackRock's survey found that while they spent a high proportion of their income on basic essentials – more than 52c for every $1 – they saved less than other age groups, at just 12c per $1 earned. That is a lower rate of saving than among those aged 24-35, who saved 18c per $1.

Even with no new money to inject into savings, efficiencies can be made. Those in their forties are likely to have had a number of jobs by this stage and may have four or five small company pensions scattered around with different employers – locate these and consolidate them into one pension. Doing so may reduce fees and improve performance.

Nor is it too late to start saving. The chances are you'll be working for another 20 years and there is time to build up a retirement income. Contribute to your company pension scheme. The regular investment in markets should produce better returns than cash savings over the medium to long term.

To work out the amount of income you will require in retirement, imagine there are no children and no mortgage. How much income do you really need? What are your continuing expenses?

Once you have an idea of how much you will need, you can try to put a plan in place to save. It is unlikely you will be able to afford to save as much as you need immediately, but the important objective is to start the savings habit.

The 50s

The pressure intensifies. Many in their fifties have not fully paid off their mortgages, and other costs such as university fees or caring for elderly parents may have crept into the equation. But this is arguably the most important time for retirement planning.

Understanding about where your pension savings are invested becomes more vital, as you may need to reduce or increase risk depending on how near you think you are to drawing an income.

With many people working into their sixties and beyond, and even then wanting their pension to benefit from further investment growth, it may be a mistake to become too cautious too early.

The most important factor is the amount you save during your career. If you want to reach your retirement goals and you're not there yet, you will need to ramp up your contributions.

A lot of people rely on an inheritance to see them through but they don't realise that the cost of long-term care for elderly parents can easily eat up hundreds of thousands of dollars of assets.

The lost generation

Like many of her generation, Helen Tailor-Fearn has seen her parents retire on relatively comfortable pensions, based on their final salaries. They are both in their seventies.

“They belonged to good group pension schemes and both retired before they were 60,” Ms Tailor-Fearn says.

But Ms Tailor-Fearn, who works as a credit controller for a software firm, and her husband, who works in IT, are much more on their own. They will retire on what they can save themselves.

“We’re not going to have the choice of being able to retire early. Yes, we’ve saved, and certainly more than some people of our generation. I have friends who have made no preparation for retirement whatsoever,” she said.

She reckons her contemporaries – those now in their forties and early fifties – are a “lost generation” as far as pensions go. “It’s about ignorance,” said Ms Tailor-Fearn. “We saw that our parents were more or less looked after and we thought it would be the same for us. But in fact it’s gone a bit pear-shaped. Here we are in our forties and we discover that there isn’t going to be the same company scheme, probably, that earlier generations have enjoyed.”

Her only son is in his late teens and about to go to university. Will his generation fare better?

“I think the youngsters of today will be better placed than us, partly because they’ve learnt more about the need to think ahead about money. They realise they’ve got to get their act together.”

Abridged version of article by Nicole Blackmore

The Telegraph (UK), 3rd November, 2013

The Indigo View
Generally, lower taxes and higher earnings in Asia enable employees to save more during their careers but you should guard against complacency. Redundancy, an expensive lifestyle and the perceived absence of a rainy day may lead us to come unstuck if we fail to make adequate provision for our retirement. The CLSA Group Retirement Plan is in place to enable you to secure your financial future whatever your age. Just one question: Are you saving enough?


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