Defusing Britain’s savings time-bomb

Speculation is mounting that George Osborne will use the Budget on March 16th to unleash a ‘stealth raid’ on the pension pots of higher-income taxpayers.

The chancellor reportedly intends to introduce a new system of flat-rate tax relief on pension contributions.

All workers would receive tax relief of somewhere between 20% and 30%, hitting higher-rate taxpayers in the pocket and saving the Treasury an estimated £6bn a year.

Mr Osborne may not go ahead with the reforms, of course, but if he does we’re sure to hear claims from many commentators that the pension is dead.

Don’t believe the doomsayers, though. A flat rate of relief would indeed have a negative impact on high earners, but that doesn’t mean they should give up on pensions.

The bottom line is that – and this is hardly a startling revelation – as a nation we are simply not saving enough for retirement.

Younger people face a particularly worrying scenario. Recent research by Royal London revealed the extent of the problem. It showed that:

• Today’s 35-year-olds need to have saved at least £666,000 by age 65 to secure the same standard of living of today’s pensioners
• The cost of living for a pensioner is expected to soar by nearly 150% by 2050
• Today’s 30 – 40 year olds have a median pension pot of only £14,000, well short of the fund they require to secure a monthly income that will just cover the predicted basic £1,715 cost of essentials in 2050

Royal London found that the biggest single piece of financial advice 65-75 year olds would give those in their 30s is to start saving as soon as possible. Only 2% would tell a 35-year-old to not worry and to live for today.

The importance of passing the savings habit down through the generations is perhaps the main reason that, whatever the chancellor announces on March 16th, today’s high earners should stick with pensions.

Leading by example and extolling the virtues of retirement savings to the next generation could be the key to defusing Britain’s pensions time-bomb.

Call us today on 01244 347583 or email info@innesreid.co.uk for advice and guidance on all aspects of pension and retirement planning.