Afficionados of social media will recall that several years ago, a website called Death Clock became a popular, if macabre, pastime for bored office workers.
Type in a few vital statistics, and the site would tell you when you were likely to shuffle off this mortal coil, giving you a handy date to post on Facebook so your friends could order the wreath.
You may have found this funny or sinister, depending on your point of view, but now Pensions Minister Steve Webb wants to do something very similar to stop us all from spending our pensions on a Lamborghini.
Pensioners Running Out of Pension
According to Webb, pensioners often underestimate how long they will live, and end up running out of cash. Changes to the pension regime announced in the Budget in March mean that this is now even more of a worry, since fewer people will buy an annuity – or lifetime income – with their pension pot now that it is easier to take your pension as cash.
Webb hopes that by providing retirees with life expectancy guidance, he will stop people spending all of their pension pot at once. But how much difference will knowing a hypothetical ‘death date’ really make to the way we use our pension savings?
Independent financial adviser Ray Black says that the government should be given credit for tackling this ‘taboo subject’.
“In future, people will live for 25 to 30 years or more in retirement and the message to them is to start saving early and to think about how best to make their savings last over that period,” he says. “They should also think long and hard before taking all of their money out of their pension in one go as they may need to make it last for a lot longer than they realise. Just because you can do something, it doesn't mean that you should.”
However, pension expert Ros Altmann warned that telling people when they are expected to die could be a ‘turn off’.
“Actuaries may find forecasts of date of death useful, but most people would relate better to a forecast of how long they are 'likely to live',” she said. “This is not just semantics. It is vital to help people want to think about later-life financial planning. Too often, the pensions industry puts people off, using terms which are not user-friendly. A life expectancy calculator can only help if it is used in the right way.”
High Cost of Failing to Save for Retirement
Webb needs this to work. The fact that the British public is living longer is already proving a strain on the State, and repeated surveys have shown that many of us are not putting away enough money into our pensions to support ourselves in our retirement.
Figures from the most recent HSBC survey into the Future of Retirement found that nearly 40% of current retirees felt that they hadn’t prepared adequately for giving up work. Many of those approaching retirement had expectations for financial comfort that were not matched by their savings.
In terms of persuading us to invest our savings in our own futures, via our pension, the government is now providing us with both a carrot and a stick. The carrot: the increased flexibility of pensions announced by the government in the budget will be enough for many. Under the new rules, it is expected that anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final-salary scheme) will be able to take out their savings as a lump sum to spend or invest as they wish. Coupled with the generous tax breaks on pension saving, this new flexibility will be a compelling argument.
Now, however, comes the stick: life expectancy guidance – warning you that blowing your pension savings in the first few years of retirement would be unwise. The message is clear; get the information you need and take responsibility for saving for your own retirement. It may last longer than you think.
