Sound Financial Group Blog

Live Long, Live Poor? The media has been busy telling us recently how many Billions have been wiped off the value of UK shares and how this will be disastrous for pension funds and those soon to retire. But there are much bigger problems out there...

The Daily Express is one such culprit and recently ran the headline ‘Pensions crisis as shares collapse’ on its front cover. This sensationalist headline followed a sharp drop in global stockmarkets and the article went on to explain how billions of pounds had been wiped off the value of pension funds in a single day, etc. The fact that the headline sat next to a smiling photograph of Big Brother contestant Sally Bercow did little to ease the impact. 
Very little is reported when share prices recover, but of course that doesn’t make good copy. As investors we can be myopic when it comes to how the ‘markets’ perform and emotional decisions based on such feelings can do much more harm than good. But when it comes to pension planning there are two much bigger problems that many of us face.
First is the fact that far too many people are making and have made insufficient provision for their later years. We are living longer and an ‘average’ retirement can now last for 17 years, however a 60 year old couple can expect one of them to live at least 30 years and so income levels will need to be maintained with this in mind. Figures recently published suggest that to achieve an income in retirement of £25,000 pa contributions would need to be made of around £4,800 per annum over a 40 year working lifetime. This is of course subject to fund growth, inflation and other factors. 
A second major factor is the continued fall in annuity rates, which determine how much income can be achieved from a pension fund, depending upon, age, sex, health, etc. Annuity rates will be determined by Gilt yields which as the value of Gilts rise (which is more likely during period of equity market trauma), the yield will fall causing annuity rates to follow. British Gilt yields have touched their lowest point since the 1890s!
The problem of inadequate retirement planning is one that refuses to go away, but as investors we all need to look beyond the headlines and media sound bites and take stock of our own situation. Otherwise we may have no option but to work longer and longer or retire and simultaneously reduce our standard of living, neither of which sound particularly attractive.
If you wish to discuss your own retirement planning strategy or would just like a second opinion on your current pension or investment arrangements, please contact us and take advantage of a no cost or obligation meeting.