Saturday, May 05, 2012

Pensions - Ouch, this stings

Looks like it isn't just the young generation who are bearing the brunt of the recession (low empoyment prospects, falling asset prices, inflation in the real economy, etc). The outlook for the elderly is also looking rather dim.: as central banks keep interest rates artificially low, retirees are faced with dismal annuities which puts an axe through their living standards. Those in middle have (un)wittingly shoveled their burden onto the generation above and the generation below:

from the Economist:

"... currently payments into British (defined contribution) DC schemes, from both employer and employee, are just 8.9% of salary (the American contribution numbers are similar). According to the Pensions Corporation, another consultancy, a 35-year-old who funds a DC scheme at such a level will retire on just 8% of his final salary if interest rates are low. To earn the equivalent of a DB (defined benefit) pension worth half their final pay-cheque, they or their employer would have to contribute 55% of their salary.

That might sound a tall order. But funnily enough, the Bank of England contributes 56.4% of its payroll to its DB scheme, which is almost entirely invested in inflation-linked bonds. It is a nice irony that the bank, which has done so much to discourage saving, is one of the most prudent savers of all."

Looks like it's not going to be a good time retire any time soon if you are relying on a private pension. But it's also pretty difficult to stay in employment. Rocks. Hard places.

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