Do you have sufficient pension provisions in place for your retirement?
The population of the UK has, for the most part, been brought up in the era of the welfare state. A key challenge for the government in recent years has been to convince people that changes in the country’s demographic structure and social environment make it increasingly difficult for the state to provide the social security benefits – and particularly pensions – that will be needed to maintain people’s lifestyles, at a realistic and acceptable cost to the taxpayer.
The basic state pension – set at about one quarter of the national average earnings level – is clearly inadequate for anything more than subsistence living, yet many people are continuing to reach retirement age with little or no pension provision to look forward to apart from the basic state pension.
It is not unrealistic to refer to the situation as a crisis. The extent of the problem is illustrated by the fact that recent estimates of the total shortfall in pension provision – popularly known as the savings gap – have varied between £27bn and £33bn. Statistics show that 90 per cent of people now live to the age at which they receive their state pension, compared with 66 per cent of people only 50 years ago – and those who do collect their pension receive it on average for eight years longer than did pensioners in the early 1950s.
The problem has been accentuated by the accelerating trend in occupational pensions away from final salary schemes (also known as defined-benefit schemes) and towards money purchase (or defined-contribution) schemes.
Individuals will increasingly have to take responsibility for their own retirement provision, and they need advice to help them through this complex area of financial services.
Individuals who have made sufficient National Insurance contributions will be entitled to a basic state pension and, in certain circumstances, additional state pension/pension credit. However, these are set at a fairly low level and most people would prefer a higher level of income in retirement than the state provides.
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