Before last night, this was not a question to which I had given much thought. I will be 79 in 2050 if I am still around so care costs rather than pension decisions will probably be the order of the day. But a group of twenty-something Young Fabians are considering the retirement options facing their generation in 2050 and last night they asked me, the Shadow Pensions Minister, Gregg McClymont MP and Fabians General Secretary, Andrew Harrop to gaze into our crystal balls and contribute to their report.
It is easy to say how difficult it is to predict the future but that feels like a cop-out. Look back 40 years and the Britain of the 1970s contained plenty of clues to our lives today; we had joined the European Common Market, the TV was at the heart of our domestic lives, the NHS and welfare state were central to British identity and society and most Britons lived in the fast-growing suburbs of the major cities and towns of our islands. Oh, and Abba was on the radio a lot. Looking forward 40 years, we can be fairly certain that in 2050 we will still be part of a reframed European Union, and that the population of the UK will have continued to grow as part of the expected 20% increase in the number of people on the planet. Barring catastrophe, we can also be fairly certain that the UK will continue to be one of the richest countries on the planet but economic growth and power will be much more evenly distributed with the emerging medium-sized countries such as Venezuela, Colombia, Iran, Indonesia and Malaysia displacing the influence of the smaller Northern European countries. [1] Abba may still be on the radio but Sweden and all its Nordic neighbours will have dropped out of the world top 30.
So what does this mean for retirement options in 2050? Three thoughts from me:
- Retirement is relative. What you expect and want as a retiree is conditioned by what you have had as a working adult; the retirement lifestyle expectations of a low paid manual worker and a middle class professional will still be different in 2050 just as they are now. While the benchmark for pensioner poverty is established, anything above that is relative, not least to society as a whole and the economic environment. An important point for today’s twenty-somethings is not to take the experience of today’s middle class baby-boomer retirees as the norm; this is a group blessed by a unique combination of Defined Benefit pension schemes and a significant uplift in property values that is unlikely to be repeated.
- Financial Planning will have to be the norm for future generations, not the domain of the wealthy middle classes. Today’s graduate twenty-somethings may already be in debt from their higher education. They will be auto-enrolled into pension schemes during their working life. With mortgage availability limited they will buy a home later, have to work later, pay for their children’s higher education (and motoring costs) and budget for their long term care. To manage all these commitments, they will have to plan and budget in a way their recent predecessors have often been able to avoid.
- Understanding pensions will be vital. Ok, you would expect me to say that – I work for the pensions industry. But listen up. If people want to retire on decent pensions, the single most important thing that matters is the level of contributions into the pension. Debates about charges, governance and disclosure rage in the media and are all important to address in an age of auto-enrolment. But they are all largely irrelevant to your future retirement if you and your employer have not contributed enough in the first place. A pension fund can’t grow anything out of nothing. Increasing a contribution from 8%-12% can mean up to 50% more in retirement[2]. If the retirees of 2050 only understand one point that should be it.
Back to the roundtable. Encouragingly there was plenty of agreement on the need to save, to get younger people interested and the critical importance of a productive economy to produce growth and employment. Big challenges. But the world of 2050 will be a lot less scary if we start thinking about it now.
[1] The World in 2050: HSBC Global Research, January 2011
[2] Time to Act: Tackling our Savings Problem and Building our Future: ABI, June 2012