Money
Managing your money
Thinking of investing? Educate yourself
The alarming and often unacceptable state of private and public pension schemes is very familiar to Saga readers. It’s a problem that we all face. But there’s no law of the universe that says there has to be a problem, of course, writes Dr John Andrews
The provision of pensions is a matter of sound money management, and it's fair to expect that our governments, and private pension providers, should be able to ensure that we can all live in at least reasonable comfort. This, as we all know, is turning out to be less and less the case.
State pension schemes work on a number of assumptions, one of which is that there's a constant wave of fresh workers coming along to pour in enough money to fund their parents' retirements. But the baby boom generation looks like being the last of its kind, and birth rates are falling in the western world. Also, happily, we're living much longer than before. So this key assumption is wrong.
And while many private pension funds are highly professional in their operations, unfortunately it isn't true in all cases. Adapting to changing global conditions has left many company schemes struggling and under-funded, and in the worst cases, massive fraud has occurred.
What can be done? Well – we could all work longer, shifting the worker/retiree ratio. Or we can pay more tax, but that's a political hot potato. In any case, both of these are financial aspirin – they alleviate the pain without getting to the issue of why it's there in the first place. And the answer to that one is actually very simple. We're worried because our finances are out of our control, and because we, as individuals, don't feel we have much understanding or say-so in such a crucial area; we know very little about how to accumulate money.
Making money and budgeting our day to day expenses, while we're in work, is one thing. Knowing how to put enough aside, how to invest for growth while keeping a close eye on risks, is something else entirely. Nobody teaches us how, and few of us become self taught. If we did, the pensions-problem balloon would start to look more like a party game and less like a nasty threat about to explode in our faces. And the funny thing is, it's really not that difficult to at least understand the basics. I really do believe that we can learn enough to help ourselves, and to understand what the money managers are talking about. It's the old story of give a man a fish and he'll eat for a day; but teach him how to fish and he'll feed himself for the rest of his life.
