Just Group’s Retirement Risk Index is an excellent idea in that most people are familiar with the term ‘pension’, but too many will not have considered the importance of a pension to themselves and their family.
There is a need and desire in Government and the financial profession to increase knowledge in this vital area and the index is a positive step in knowing where best to target resources. It should also help people to think about their long-term future and balance spending now against their aspirations for a happy and long retirement. It is important that the index gets wide publicity and leads people in the right direction to get regulated impartial advice. Pension-Wise is a good starting point and many workplaces now provide access to basic pension information.
Being glass half-full by nature, I am pleasantly surprised that 50% of respondents are deemed to have sufficient knowledge of the basics to be deemed low risk but, as the report points out, there should be no room for complacency. Education at an early age must continue to improve. Over-40s (as covered by the index) may be the last generation that feel they can rely on releasing equity built up in their residential property to supplement income and spending in retirement. This is a dangerous assumption at the best of times and not likely to chime well with Generation X.
The index clearly targets the over-40s as current legislation allows access to your private pension at 55 and you should be planning well in advance as to what action, if any, to take then. Remember, if you are in employment and healthy you have many years ahead of you at 55 and the best advice may well be to do nothing at that stage.
The state pension is a crucial part of the welfare state, but it was not originally designed to provide an income for an average retirement of 20+ years. With the swift demise of defined-benefit pensions in favour of money-purchase schemes, planning for retirement with any certainty has become more complex – and therefore the need to be well-informed, never more vital.
The main risks in retirement are longevity and inflation. Inflation is becalmed at the moment, but it hasn’t always been the case and it could re-emerge. It can reduce the spending power of the pound in your pocket quite alarmingly. The cost of healthcare and insurance tends to rise significantly above inflation as you get older anyway. We all want a comfortable and long retirement – we may need to learn to sacrifice a little now in order to fulfil that wish.