YourLocalInvestment
21st November, 2017

 

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Why is it that so many people are turning to property as a pension alternative?

Most people are ‘frustrated and worried’ about their pension plans and research has shown that pensions are not performing for the following reasons:

  • A lack of management
  • Undue risk
  • Inflated administration charges
  • Reduced final pensions payable
  • Companies spending your money

Events such as the Maxwell scandal, pension mis-sellings and the collapse of Equitable Life have seriously dented people’s confidence in pension schemes, and rightly so, in our opinion.

Most people are, without realising it, wasting their money and ending up with a lack of safety and security; resulting in the daunting prospect of retiring much later in life or not having enough to live on through retirement.

Property is an excellent alternative:

  • Property is something that we as people will always need like we need food and water: demand will be a constant
  • Property values have, through history, doubled every 7-10 years
  • Unlike shares, property is a tangible asset that you can control

In Britain, companies are being forced to divert cashflow to clear the deficits in their funds within ten years – the Pensions Regulator has started to use his new power to veto dividend increases.

But it’s a problem that has much wider repercussions. It’s starting to embrace all sectors of society and to trigger the first skirmishes in the coming pension wars.

Politicians have seen no point in courting unpopularity with voters so as to address problems whose pain will be immediate, but whose gain will only become apparent long after they’ve retired. That’s why they keep dodging the issue (although they do ensure that their own lavish pensions are adequately funded).

The scale of the emerging pension’s problem is frightening: In Europe, the Kok Report recently warned that by mid-century the ratio of pensioners to active workers will double. Broadly speaking, that means the burden on the working population of supporting those who have retired will also double.

In Britain, 97 of the hundred biggest listed companies have deficits in their pension funds, while the liabilities of unfunded schemes for public-sector employees, if taken into account, would more than double the national debt.

Worldwide, the long-term solution to the pension’s problem would seem to lie in a combination of measures:

  • Raising the ages at which people can retire on full pension;
  • Reducing pension benefits for future retirees;
  • Switching state pension schemes from an unfunded to a funded basis (difficult, as this amounts to those actively employed being asked to simultaneously finance existing retirees as well as save for their own retirement);
  • Providing stronger tax and other incentives for individuals to save and thus accumulate resources for their own retirements;
  • Legislating formulae for calculating the future liabilities and assets of funds that are more realistic than those currently used (too generous in the US, too conservative in the UK, for instance) and
  • Increasing contributions to pension funds by the state, companies and individuals.

In a world that’s become increasingly financially dangerous for retirees, personal financial planning with a global view is more important than it’s ever been.