It may not mean much to those baby-boomers about to hit retirement but the UK is not alone in its concerns over the state of pension provision, says Christopher Salih
There is a consensus in the financial services industry that pensions is at present not the rosiest of markets. The UK life industry has been struggling for the last decade, while terms such as 'with-profits' and 'A-Day' have the power to send chills down the spine of anyone vaguely connected to them.
What you might be surprised - or even comforted - to learn therefore is that, despite the pension problems that have beset UK advisers and clients alike, we are far from alone. The whole industrialised world is affected by similar issues that are eating away at their respective economies
Life insurance giant The Hartford has just published an International Retirement Survey, which documents the perception of pensions in its three main pillars of business - the US, the UK and Japan - and reveals just how global pensions provision concerns truly are.
Tip of the iceberg
Consider just a couple of the facts from the survey, which canvassed some 2,500 respondents aged 45 and over. First, seven in 10 people in the UK and US over the age of 45 have at least some concerns about having enough money in retirement, while that number rises to nine out of 10 in Japan. And that's just the tip of the iceberg.
As to whether traditional sources of retirement income will be sufficient, 52.7% in the US ranked the government-sponsored pension as their first or second source of income in retirement compared to 45% in the UK. This comes in spite of the fact that over half the US respondents doubt that social security would be able to maintain their standard of living in retirement. This doubt is even greater in the UK and Japan where it was shared by 77.6% and 89% of respondents respectively.
So are we exaggerating the UK's problems or is the industrialised world burying its head in the sand? "It's a problem facing pretty much the entire western world," says Mike Morrison, pension strategy manager at Winterthur Life. "Here in the UK we're in a slightly different position to Europe. Our state pension schemes are fairly small meaning employers bear the brunt of the need to work on pensions, whereas in Europe they offer substantially larger state pensions. However, as with the UK, they too are running out fast and there are already problems with strikes in places such as Italy, France and Austria."
While Europe may be closest to the UK geographically, realistically the US is the most similar market to our own, according to Ian Green, a director at Caversham Buchanan. "They are a good precursor for how our market will be," he says. "Because the US wasn't flattened by the war as much as we were, their mass working population has been in retirement and reliant on state pensions for a few years, whereas our baby-boomers are only hitting 60 this year."
Green believes one of the saving graces for the UK, for now, has been house prices. "The UK has tended to be a nation of homeowners so, with rising house prices, older members of the population have been able to sell their homes and live off the proceeds in their retirement," he says.
The advanced situation and urgency in the US is reflected in The Hartford's survey where 58% of respondents said they would be willing to accept "much risk" or "some risk" in return for greater potential for financial gain. The figure is slightly lower in the UK at 52.2% and far less in Japan at 28.3%.
Perhaps the most eye-catching theme of the whole survey is the need for, yet lack of confidence in, personal financial planning. Only 46% of those surveyed in the UK relied on advisers to provide credible financial planning advice - although the comparative figures were 40.4% in the US and just 16.3% in Japan.
In terms of routes to financial advice, the UK respondents placed financial and tax planners as the top choice, followed by, ahem, the news media. Interestingly in Japan, while the news media was the most popular avenue at 34.7%, the advice of friends and relatives outranked that of financial planners, accountants and banks. "Japan is totally different economically and culturally to the western world," says Green, "Family is much more the priority, particularly when it comes to children looking after their elderly parents - something which is not so heavily engrained in the UK and the US."
So what can we in the UK draw from this? Despite the Government increasing the retirement age to 68, people still need to be saving now. Andy Oliver, this month's Adviser Profile on page 14, points out that if a 25-year-old on £30,000 a year would like to retire at 60 with a £20,000-a-year income they would need to have a fund of £400,000 saved up to ensure their money doesn't go before they do. Adds Morrison: "What it comes down to is people figuring out how long they will be working for and building a framework around that."
Green's view is that, when it comes to pensions, the one thing people cannot afford to do is procrastinate. "Do it yesterday as time flies," he says. "It's been a hot potato for the Government for some 40 years, but one of the reasons it struggles to be solved is that all politicians don't look past their own term. Take a look at A-Day as an example. It was called pension simplification, ended up being pension 'complification' and still no-one outside our own little world knows anything about the biggest re-write of pensions in decades."
While we may draw some cold comfort from the pensions travails of other industrialised nations, the truth is - at individual, adviser and government level - things need to be done and done fast. In pension terms, 2006 may eventually come to be best remembered, not for the implementation of A-Day, but as marking the start of the mass retirement of the baby-boomer generation. How long before many of these retirees begin throwing their rattles out of the pram as their bottles of milk begin to run dry?
Risk to retail investors
Joined as head of strategy, multi asset, in June
Group income protection