Here are three main reasons why you need to invest:
1. We're living longer;
2. Individuals are increasingly expected to fund their own futures;
3. Government initiatives will make you an investor, so you may as well embrace it.
Gone are the days when you were employed by one company for most of your working life and retired with a comfortable final salary pension and/or state pension. These days, companies will generally contribute to your pension but there’s no guarantee that you’ll end up with a set percentage of your end-of-career salary. Similarly, the state pension at present might pay out on average just over £100 per week, but even in the unlikely case that this seems sufficient for your planned lifestyle in retirement, there’s no guarantee that this will still be around in 30, 20, or even 10, years’ time.
Add to this the indisputable fact that we’re living longer—wealthier economies harvest healthier citizens, who live longer and are whose longevity is further lengthened by access to improved healthcare and scientific developments—and it’s not hard to imagine that you could live for another 30 years after retiring at age 67. That’s potentially 30 years of living expenses to fund without an income, if you don’t take matters into your own hands.
As such, individuals in the UK are waking up to the importance of retirement planning. And they’re about to get another boost when the government’s initiative kicks in next month to automatically enrol UK employees in their company’s pension plan. This potentially means a whole new generation of investors is about to be born.
At the other end of the scale, seasoned investors who have been taking independent financial advice will also see changes. From the start of 2013, individuals will no longer pay for financial advice in the form of commissions on investment products purchased through advisers. Instead, they will pay fees directly to advisers. This change is being put in place by the government and it's called RDR, which stands for Retail Distribution Review. This doesn’t in any way mean investors will be paying more for the same advice, but it’s expected that some investors may opt to manage their own finances or to more closely watch their portfolios to ensure their adviser is earning his or her fees.
It seems clear that the UK is gradually shifting closer to a US model, whereby individuals must plan for and finance their own future, whether that be further education or retirement. All too often this comes as a bit of a shock but once it’s accepted that the key to financial security lies with the individual, the next step is where to save and how much to save.
Against this backdrop, it’s paramount that the UK’s savers understand the different ways in which they can save, whether it be in an ISA wrapper, a workplace pension or a self-invested pension wrapper, as well as understanding the investments they can place within those wrappers and their associated risks.
