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Is the state pension nearing collapse?

The low level of the state pension is proving to be a headache not only for Britain’s government but also the country’s ageing population and workers wondering how they will survive in old age.

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For many workers the collapse of final salary pension schemes is also adding to the problems which independent financial advisers face when trying to reassure clients and manage their schemes. Software for IFAs is fortunately taking up some of the slack.

Compulsory

In this febrile atmosphere several potential solutions have been suggested and indeed acted upon. One of these is the introduction of the compulsory workplace pension to try to ensure that all current workers have at least a small private pension to access on retirement.

Nonetheless, the cost of the state pension continues to rise, and the government is concerned that a critical point could be reached in the mid-2030s.

This means that financial advisers are being approached by younger clients concerned that they may not be able to rely on a state pension. This new group of clients makes Software for IFAs even more necessary.

Gap

One recent proposal came from the Resolution Foundation, which in an attempt to narrow the financial gap between the generations came up with the idea of a £10,000 gift to 25-year-olds funded by a lifetime receipts tax in place of inheritance tax.

This grabbed the headlines but hardly seems to be a way to make Millennials more comfortable or more financially self-sufficient.

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The Centre for Policy Studies proposed winding down the state pension and replacing it with a workplace ISA and a senior citizens’ pension.

This would mean no more entitlements would exist after 2020, although existing entitlements would be valid. The senior citizens’ pension would be payable from the age of 80 and first payments would be made in 2034.

The workplace ISA would include employer contributions and be kick-started by a 50% contribution from the state.

These proposals have not been received well by industry specialists. With successive governments having increased the retirement age by small increments, many believe that this proposal would effectively mean lifting it to 80 years of age – hardly a vote winner.

The solution to worries about retirement according to them is still well-planned saving.

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